USD/CAD experiences a decline as the US Dollar weakens in response to subdued US inflation figures, with attention now turning to the Retail Sales data scheduled for release on Friday. US wholesale prices remained unchanged in July, falling short of the anticipated 0.2% increase following a revised decline in June. The commodity-linked Canadian Dollar may encounter challenges stemming from declining crude oil prices. USD/CAD experiences a decline for the second consecutive day, currently trading near 1.3920 during the Asian trading session on Friday. The pair depreciates as the US Dollar declines following a softer-than-expected US inflation report. Market attention is currently directed toward the forthcoming release of the US July Retail Sales data later today.
In the context of inflation dynamics, the Bureau of Labour Statistics indicated that US wholesale costs for goods and services remained unchanged in July, demonstrating a cooling trend compared to the expected 0.2% increase, following a revised 0.1% decrease in June. Excluding the more volatile components of food and energy, the core Producer Price Index experienced an increase of 0.2%, which is marginally below the market consensus estimate of 0.3%. On an annual basis, headline PPI rose by 4.7% year-over-year in July, whereas core PPI saw an increase of 4.2% during the same timeframe. These cooling inflation metrics have altered expectations concerning Federal Reserve policy.
According to the CME FedWatch Tool, markets currently assign a 34.8% probability to a U.S. rate hike at the forthcoming September meeting, a decrease from 40% observed immediately after the PPI data release. The downside of the USD/CAD pair could be constrained as the commodity-linked Canadian Dollar may face difficulties amid declining crude oil prices. Oil prices have declined slightly as investors take a cautious stance, closely observing diplomatic efforts aimed at reopening the Strait of Hormuz. Crude oil persists in its movement from the Persian Gulf, undeterred by the prevailing impasse. Some tankers are actively sailing with their transponders switched off to mitigate risks, although vessels navigating the strait remain exposed to persistent threats.
Meanwhile, the U.S. asserts that as much as 9 million barrels of oil per day are presently navigating the vital waterway, bolstered by the increasing capabilities of U.S. forces to escort tankers. According to TD Securities, the recent loss of “easing near-term momentum has also catalyzed modest selling in WTI crude on the day.” Even so, the bank underscores that “fundamental tightness across crude and product markets should ultimately support further upside,” suggesting that the latest pullback is more a function of short-term flow dynamics than a shift in the underlying supply-demand backdrop.
