USD/CAD bounces from 1.3600 as Canada’s annual CPI declines expectedly

• USD/CAD recovers from 1.3600 as an expected decline in Canada’s inflation data boosts BoC’s more rate cut hopes.
• Canada’s annual headline CPI decelerates to 2.5% as expected.
• Investors await Fed Powell’s speech at the Jackson Hole Symposium.

The USD/CAD pair rebounds sharply from the round-level support of 1.3600 in Tuesday’s New York session after the release of Canada’s Consumer Price Index (CPI) data for July.

The Canadian CPI report showed that the annual headline inflation decelerated to 2.5%, as expected, from 2.7% in June. In the same period, the Bank of Canada’s (BoC) core CPI, which excludes the eight most volatile components, grew at a slower pace of 1.7% from the prior release of 1.9%.

However, monthly headline inflation grew strongly by 0.4% after deflating in June. Economists estimated the headline CPI to have grown by 0.3%.

Consistently easing price pressures have prompted expectations of more interest rate cuts by the BoC. The BoC has already reduced its key borrowing rates by 50 basis points (bps) to 4.5% since its July policy meeting.

Meanwhile, the commodity-linked Canadian Dollar (CAD) is also expected to face pressure due to weak Oil prices. Rising expectations of a ceasefire between Iran and Israel have resulted in diminishing Oil supply worries, prompting weakness in its prices. It is worth noting that Canada is the largest exporter of Oil to the United States (US) and lower Oil prices result in a decline in foreign inflows to the former.

In the neighboring nation, investors await the Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole Symposium on August 22-24. Fed Powell is expected to provide cues on how much the central bank will cut interest rates this year. This will have a significant impact on the US Dollar (USD).

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declines to a more-than-seven-month low near 101.70.