USD/CAD holds above 1.3650 ahead of US PPI data

• USD/CAD holds positive ground near 1.3675 on Tuesday.
• Fed officials said in recent comments that the high-for-longer interest rate narrative is needed to bring down inflation.
• The lower crude oil price weighs on the commodity-linked Canadian Dollar (CAD). 

The USD/CAD pair trades on a stronger note around 1.3675 during the Asian session on Tuesday. Amid the light week in terms of Canadian economic data, investors will keep an eye on the US Producer Price Index (PPI) on Tuesday and, the Consumer Price Index (CPI) on Wednesday. 

Several Federal Reserve (Fed) officials stated in recent weeks that the current level of interest rate should be held higher for longer to bring down inflation. During the press conference, Fed Chair Jerome Powell said that an interest rate hike was “unlikely,” but he did not fully rule it out. Powell emphasized the need to take more time to gain “greater confidence” that inflation is moving towards the Fed’s 2% target. 

Dallas Fed President Lorie Logan said that there are upside risks to inflation, adding that it is too soon to cut interest rates. The high-for-longer US rate narrative is likely to underpin the Greenback and create a tailwind for USD/CAD for the time being. 

On the other hand, the decline in crude oil price continues to drag the commodity-linked Canadian Dollar (CAD) lower, as Canada is the leading exporter of oil to the United States. Nonetheless, the upbeat Canadian employment market data for April might convince the Bank of Canada (BoC) to wait longer t to ensure that inflation will be sustained. This, in turn, might cap the downside of the CAD.