Ella 
During early European trading on Monday, USD/CAD continued its decline near 1.3605. The prospect of interest rate cuts by the Federal Reserve (Fed) has led to a weakening of the US Dollar (USD), putting pressure on the pair. Investors are awaiting fresh impetus from Canadian consumer price index (CPI) inflation data, which is expected to slow to 2.8% in April from 2.9% in the previous reading.
Markets expect the Bank of Canada to begin cutting interest rates in June or July, ahead of the Federal Reserve’s first move. However, Canada’s CPI inflation report on Tuesday will be in focus and may provide some hints about the next interest rate decision. The central bank may need to see inflation slow down to convince itself to cut interest rates next month. Investors currently put the odds of the Bank of England cutting rates in June at nearly 40%. This in turn could put some pressure on the Canadian dollar and limit the downside for the pair.
On the other hand, the U.S. Federal Reserve is expected to remain on hold until September despite weaker-than-expected U.S. inflation data. Cleveland Fed President Loretta Mester, one of the more hawkish members of the FOMC, said the Fed’s current stance on monetary policy is appropriate as it continues to evaluate incoming economic data. In addition, Fed Governor Michelle Bowman said policy is restrictive but she is willing to raise interest rates if inflation stalls or reverses. Fed officials’ wait-and-see mode may support the dollar.
