Key Moments
- USD/CAD trades near 1.3920, marking a second consecutive daily decline as the U.S. Dollar weakens.
- U.S. headline PPI was unchanged in July versus expectations for a 0.2% rise, while core PPI increased 0.2% on the month.
- Market-implied odds of a Federal Reserve rate hike in September eased to 34.8% after the data, down from 40%.
USD/CAD Under Pressure on Softer U.S. Inflation
USD/CAD extends its pullback for a second straight session, trading around 1.3920 during Asian hours on Friday. The pair is under pressure as the U.S. Dollar loses momentum following a weaker-than-expected U.S. inflation print, with traders now turning their attention to the July U.S. Retail Sales report due later in the day.
U.S. Producer Prices Undershoot Expectations
Fresh inflation data from the Bureau of Labor Statistics shows that U.S. wholesale prices for goods and services were unchanged in July, underperforming the projected 0.2% monthly increase. This followed a revised 0.1% decline in June.
Excluding food and energy, the core Producer Price Index (PPI) advanced 0.2% on the month, slightly below the consensus estimate of 0.3%. On a year-over-year basis, headline PPI rose 4.7% in July, while core PPI increased 4.2% over the same period.
| Indicator | Period | Actual | Expected | Prior (revised) |
|---|---|---|---|---|
| Headline PPI (m/m) | July | 0.0% | 0.2% | -0.1% |
| Core PPI (m/m) | July | 0.2% | 0.3% | – |
| Headline PPI (y/y) | July | 4.7% | – | – |
| Core PPI (y/y) | July | 4.2% | – | – |
Fed Expectations Ease After Data
The softer inflation backdrop has prompted a reassessment of Federal Reserve policy expectations. Data from the CME FedWatch Tool indicate that market participants now assign a 34.8% chance of a rate hike at the upcoming September meeting, down from 40% immediately following the PPI release. This shift in rate expectations is contributing to the recent weakness in the U.S. Dollar against the Canadian Dollar.
Oil Price Softness Limits CAD Upside
Despite the U.S. Dollar’s retreat, downside in USD/CAD may be contained as the Canadian Dollar, which is closely tied to commodities, confronts pressure from softer crude oil prices. Oil prices are edging lower as investors adopt a cautious stance and monitor diplomatic efforts aimed at reopening the Strait of Hormuz.
Crude shipments from the Persian Gulf continue despite the stalemate. Some tankers are operating with their transponders turned off to reduce exposure to risks, but vessels transiting the strait remain vulnerable to ongoing threats. At the same time, the U.S. states that up to 9 million barrels of oil per day are currently moving through this key route, with flows aided by the growing capacity of U.S. forces to escort tankers.
TD Securities Outlook on Crude Oil
According to TD Securities, the recent moderation in bullish momentum has weighed on West Texas Intermediate (WTI) prices in the near term. The firm notes that the “easing near-term momentum has also catalyzed modest selling in WTI crude on the day.” However, it also emphasizes that “fundamental tightness across crude and product markets should ultimately support further upside,” indicating that the recent pullback reflects short-term flows rather than a change in the broader supply-demand environment.
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