Photo by Michelle Spollen on Unsplash
 

• USD/CAD trades with mild gains around 1.3870 in Wednesday's early Asian session. 
• Canada's annual inflation rate eased to 1.7% in July from 1.9% in June. 
• Traders brace for the FOMC Minutes later on Wednesday ahead of the Fed's Jackson Hole Economic Policy Symposium.

The USD/CAD pair posts modest gains near 1.3870 during the early Asian session on Wednesday. The Canadian Dollar (CAD) weakens against the US Dollar (USD) as cooler Canadian inflation data raised expectations that the Bank of Canada (BoC) would cut interest rates in the coming months.

Data released by Statistics Canada on Tuesday showed that the headline Consumer Price Index (CPI) climbed 1.7% YoY in July, compared to 1.9% in June. This figure aligned with expectations. On a monthly basis, the CPI rose by 0.3%, an uptick from the 0.1% increase seen in the previous month.

Meanwhile, the core CPI monitored by the Bank of Canada (BoC), which excludes volatile elements like food and energy, experienced a year-over-year increase of 2.6% and a monthly rise of 0.1%.

The Loonie edges lower in an immediate reaction to the Canadian inflation report for July. Investors see a 39% odds of a rate cut from the BoC at the next policy decision in the September meeting, up from 31% before the CPI data, and have leaned heavily toward an easing of policy by October, according to Reuters. 

Traders ramped up bets on a rate reduction at the Federal Reserve’s (Fed) September 16-17 meeting after a weak July jobs report and a cool CPI inflation report. However, a hotter-than-expected July Producer Price Index (PPI) reading has tempered some rate cut expectations.  

Traders await the release of the FOMC Minutes later on Wednesday. The attention will shift to the Fed's Jackson Hole Economic Policy Symposium on Friday for further clues on US interest rate policy. Any dovish remarks from Fed officials could drag the Greenback lower against the CAD in the near term.

More By This Author: