USD/CAD declines even as robust US CPI data heightens anticipation for a Federal Reserve rate increase in late October. The Canadian Dollar may experience depreciation as crude oil prices decline due to the possibility of US sanction relief for shadow-fleet tankers. Proposed changes to US sanctions are designed to reduce oil freight costs, which may counterbalance the weakness of the USD and limit the downside potential for USD/CAD. USD/CAD has experienced a depreciation following the gains noted in the preceding day, currently trading near 1.4200 during the Asian trading session on Thursday. The currency pair experienced a decline as the US Dollar faced challenges, with investors assessing the Federal Reserve’s monetary policy trajectory following stronger-than-anticipated inflation figures.
The Bureau of Labour Statistics reported on Wednesday that the US Consumer Price Index – a broad measure of goods and services costs across the economy-climbed 0.6% month-over-month in September, bringing the 12-month headline rate to 3.7%. Both metrics exceeded forecasts, with the first registering at 0.6% and the second at 3.6%, respectively. Meanwhile, core CPI, which excludes the more volatile food and energy components, increased by 0.3% for the month and experienced a 2.6% rise on an annual basis, surpassing market expectations of 0.2% and 2.5%. This hotter-than-anticipated inflation report reinforced expectations for a potentially more hawkish Federal Reserve, bolstering arguments for an interest rate hike at the upcoming Federal Open Market Committee meeting on October 27–28.
In the aftermath of the data release, futures traders adjusted the likelihood of a rate hike at the late-October meeting to around 31.6%, as indicated by CME Group’s FedWatch tool. According to TD Securities, the US rates market has responded to the latest data with a pronounced move, as “Treasuries bear flattened sharply as the market penciled in more rate hikes.” The firm notes that, despite the repricing of Fed expectations, “we don’t expect an October hike despite a sharp increase in pricing,” but cautions that “the stronger data hints at the risk of more hikes in the coming months, maintaining upward pressure on rates.” Despite the weakness of the USD, the downside pressure on the USD/CAD pair may be constrained as the commodity-linked Canadian Dollar encounters its own challenges due to declining oil prices.
Crude prices experienced a downturn in response to reports indicating that the Trump administration is contemplating the relaxation of sanctions on “shadow fleet” vessels engaged in the transportation of oil and petroleum products from nations under sanctions, including Russia, Iran, and Venezuela. A US official confirmed Wednesday that the proposed shift is intended to reduce the historically elevated global freight rates. The policy discussions arise in the wake of President Donald Trump’s temporary lifting of sanctions on Russian diesel fuel-a move that has drawn significant criticism from Ukrainian President Volodymyr Zelenskiy, European allies, and various Senate Republicans.
