USD/CAD continues to drift this week. On Tuesday, the pair is trading quietly at 1.3615. On the fundamental front, US inflation improved in June and beat the forecasts. There are no Canadian releases on the schedule. On Wednesday, the Bank of Canada announces its rate decision.
US consumer inflation jumps
There was good news out on the US inflation front, as June numbers rebounded nicely. The headline figure gained 0.6%, while the core reading improved to 0.2%. Both indicators came after three consecutive declines. Inflation levels reflect economic activity, so the June numbers are welcome news that the US economy is showing signs of recovery.
Bank of Canada expected to stand pat
The Bank of Canada will set the Overnight Rate at its monthly policy meeting on Wednesday. The central bank is expected to keep its key interest rate on hold at 0.25%, where it has been pegged since March. Investors will be focusing on the bank’s rate statement, and the tone of the statement could affect the direction of USD/CAD. As well, the bank will release its monetary policy report, which will include an update to its economic forecast.
After a staggering drop of 11.2% in GDP in April, Canada’s economy has been slowly improving. This has been reflected in recent data such as the June employment numbers, which saw the economy create 950 thousand jobs. If upcoming economic releases continue in this positive vein, the Canadian dollar could gain ground on the greenback. USD/CAD dropped 3.4% in Q2, as the Canadian dollar took advantage of broad weakness in its US counterpart.
