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Canadian Dollar Weakens Amid Surging U.S. CPI, Heightening Speculation on Delayed Fed Rate Cuts

The Canadian dollar faced a decline against its U.S. counterpart as robust U.S. inflation data surpassed expectations, prompting market considerations of a potential delay in the U.S. Federal Reserve’s anticipated rate cuts, potentially extending beyond June.

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The annualized reading experienced a notable uptick of 3.2% last month, exceeding estimates for a 3.1% gain. Meanwhile, the month-over-month overall consumer price index rose by 0.4% in February, aligning with expectations.

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Adam Button, Chief Currency Analyst at ForexLive, remarked, “The U.S. dollar is broadly higher on a hotter inflation report, and that’s the whole story in the currency market today.”

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With the Bank of Canada aiming to avoid significant divergence from the Federal Reserve, ongoing pressure from the Bank of Canada on the cooling Canadian economy raises concerns about economic risks in 2025, both in terms of global and Canadian growth, according to Button.

Analysts at Monex Canada share a similar perspective, noting, “Whilst the BoC’s high for longer stance should offer some short-term protection weighing against a CAD selling off, its negative growth impact sets up a dynamic where the loonie should consistently underperform.”

From a technical standpoint, the USD/CAD pair is expected to maintain a range-bound pattern in the near term. Analysts at FXStreet point out that the pair is confined between supply and demand zones ranging from 1.3450 to 1.3590.

They further elaborate, “A bullish turn in the USD/CAD will bounce bids off of the 200-day Simple Moving Average (SMA) at 1.3478, and the way is open for buyers to explore into the 1.3600 handle as a pattern of higher highs bakes into the chart paper.”

“On the low side, failure to capture territory north of the 200-day SMA will see the pair dump back into early February low bids near 1.3360.”

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