Canadian dollar weakens as hot U.S. CPI raises prospect of delayed Fed rate cuts

Investing.com – The Canadian dollar weakened against its U.S. counterpart on Tuesday, as hotter than expected U.S. inflation data had markets considering the prospect of a rate cut from the U.S. Federal Reserve coming later than June.

The annualized reading rose by 3.2% last month, quicker than estimates for a 3.1% gain. Month-over-month, the overall consumer price index rose by 0.4% in February, in line with expectations

“The U.S. dollar is broadly higher on a hotter inflation report and that’s the whole story in the currency market today,” said Adam Button, chief currency analyst at ForexLive.

Given that the Bank of Canada is unlikely to want to diverge too much for the Fed, continued pressure from the BoC on the cooling Canadian economy, “economic risks begin to build for 2025 around global growth and Canadian growth,” Button noted.

This is a view also iterated by analysts at Monex Canada, who note that, “Whilst the BoC’s high for longer stance should offer some short term protection weighing against a CAD selling off, its negative growth impact sets up a dynamic where the loonie should consistently underperform.”

On a technical level for the pair, however, the USD/CAD pair is expected to remain range bound in the near term.

Analysts at FXStreet note, “The pair is bound between supply and demand zones between 1.3450 and 1.3590.”

“A bullish turn in the USD/CAD will bounce bids off of the 200-day Simple Moving Average (SMA) at 1.3478, and the way is open for buyers to explore into the 1.3600 handle as a pattern of higher highs bakes into the chart paper.”

“On the low side, failure to capture territory north of the 200-day SMA will see the pair dump back into early February low bids near 1.3360.”