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• USD/CAD trades with mild gains around 1.4215 in Friday’s early Asian session. 
• US annual PPI inflation rose to 3.0% YoY in November vs. 2.6% expected. 
• Trump tariff threats could undermine the Loonie, but higher crude oil prices might help limit its losses. 

The USD/CAD pair posts modest gains to near 1.4215 during the early Asian session on Friday. The uptick of the pair is bolstered by the firmer US Dollar (USD) broadly after the hotter-than-expected US Producer Price Index (PPI) inflation report. 

Data released by the US Bureau of Labor Statistics on Thursday showed that the PPI for final demand in the US rose 3.0% YoY in November. This reading followed the 2.6% increase seen in October and came in above the market consensus of 2.6%. Meanwhile, the annual core PPI climbed 3.4% YoY in the same period, beating the estimated 3.2%. On a monthly basis, the PPI and the core PPI increased 0.4% and 0.2%, respectively. The Greenback gains traction in an immediate reaction to the PPI inflation data. 

Despite the stubborn inflation in the US, markets widely expect the Federal Reserve (Fed) to lower its key overnight borrowing rate next week. According to the CME FedWatch Tool, Fed funds futures trading data reflects a nearly 95% likelihood that the US central bank will cut the rates by a quarter point. 

On the other hand, analysts from TD Economics said that both the US and Canadian economies will navigate through policy uncertainties. Analysts added that even a 10% blanket tariff on Canada would likely cause extended economic stagnation over 2 years. The concerns about Trump tariff threats might exert some selling pressure on the Canadian Dollar (CAD) and create a tailwind for the pair. Meanwhile, the recovery in crude oil prices could help limit the CAD’s losses as Canada is the largest oil exporter to the US. 

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