USD/CAD remains steady after registering minor gains in the previous day, trading around 1.3940 during the Asian hours on Thursday. The currency pair moves within a narrow range as a weaker US Dollar (USD) balances out the impact of falling oil prices on the commodity-linked Canadian Dollar (CAD).
The Greenback continues to face headwinds following the release of July's Consumer Price Index (CPI) report, which showed moderating inflation across a wide range of goods and services and significantly cooled expectations for an aggressive Federal Reserve interest rate hike in September.
According to data from the Bureau of Labor Statistics, headline CPI rose 3.4% year-over-year in July, down from 3.5% in the previous month. Similarly, core CPI, which strips out volatile food and energy prices, rose 2.5% year-over-year compared to 2.6% in June. Both figures landed right in line with market forecasts.
Following the inflation report, market expectations for future Federal Reserve policy shifts have recalibrated. According to the CME FedWatch tool, interest-rate swaps are now pricing in roughly a 40.1% chance of a rate hike in September. Odds for an October increase dropped to around 60% from 75% the prior day, with the next potential rate hike not fully priced in until December.
US inflation in line with expectations as energy and food costs ease
According to TD Securities, July US consumer price inflation came in broadly as expected, with the headline index rising “0.1% m/m (0.074% before rounding; TD: 0.15%, consensus: 0.1%).” Strategists note that the modest increase was “partly explained by still retreating energy prices (gasoline -3% m/m) and slowing food inflation,” underscoring how softer input costs helped keep overall price pressures contained over the month.
Meanwhile, the Canadian Dollar is coming under pressure as oil prices decline following downward revisions to global demand forecasts for 2026, driven by disruptions stemming from the US-Israeli war on Iran. In its monthly oil market report on Wednesday, OPEC reduced its 2026 world oil demand growth projection to 580,000 barrels per day. Meanwhile, the International Energy Agency further downgraded its outlook, forecasting a 1.6 million bpd contraction in consumption this year—a notable drop from its previous estimate of 1 million bpd.
President Donald Trump stated that the US has "total control" over the strategic waterway amid heightened rhetoric between Washington and Tehran, while diplomatic talks remain stalled. At the same time, the Trump administration is pushing to ramp up economic pressure on Iran as military actions have yet to bring the regime into compliance. Planned measures include broadening economic sanctions and implementing a naval blockade to restrict Iranian oil exports.
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