The Canadian dollar is trading quietly on Wednesday. In the North American session, USD/CAD is trading at 1.3517, down 0.07%.

FOMC minutes loom

Investors are anxiously awaiting the release of the minutes of the Fed’s January meeting later today, hoping for some insights about the Fed’s future interest rate path. The markets had priced in a March cut after the Fed signaled in December that it would cut rates. These expectations have been slashed, however, as the Fed has pushed back against expectations of a March cut and economic data has been stronger than expected. The markets are now eyeing the June meeting for a rate cut.

Canadian dollar shrugs as Canada’s inflation rate falls to 2.9%

Canada’s inflation rate dropped to its lowest level since June 2023 but the Canadian dollar showed little interest. Headline CPI declined to 2.9% y/y in January, down from 3.4% in December and below the market estimate of 3.3%. This marks the first time that inflation has fallen within the Bank of Canada’s target range of 1%-3% since June 2023. The main drivers of the decline in the headline reading were sharp drops in the price of fuel and food.

Core inflation, which excludes fuel and food, showed a modest decline in January. The average of two of the Bank of Canada’s core measures of inflation came in at 3.35% in January, below the December gain of 3.6%.- The decline in inflation is an encouraging sign for the Bank of Canada. Still, both the headline and core readings are well above the BoC’s goal of 2% inflation, which is the midpoint of the target range.

Traders should keep in mind that inflation has been zigzagging , as it rose unexpectedly in December and fell more than expected in January. As analysts like to say, inflation does not move in a straight line. This leaves BoC policy makers with some uncertainty as to where inflation is headed, but what is clear is that a rate cut is very unlikely until the BoC is convinced that inflation is on a downward trend.

USD/CAD Technical

• USD/CAD is putting pressure on support at 1.3500. Below, there is support at 1.3415
• 1.3571 and 1.3656 are the next resistance lines

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