Canadian Dollar gains ground despite accelerating CPI inflation

• The Canadian Dollar stepped higher against the US Dollar on Tuesday.
• BoC Canadian CPI inflation metrics ticked higher in April.
• The Loonie continues to roil in medium-term consolidation territory against the Greenback.

The Canadian Dollar (CAD) found a foothold on Tuesday, grinding out a slight gain against the US Dollar (USD). However, gains were limited after the BoC's own version of the Canadian Consumer Price Index (CPI) inflation rose even faster than expected in April, signaling that the Bank of Canada's (BoC) feverish rate-cutting cycle may well be over.

Canadian inflation accelerated again in April, with key CPI indicators rising more than expected in April. The BoC has been on a rate-cutting tear, delivering seven straight rate cuts, including two jump double-cuts of 50 bps since kicking off a cutting cycle in June of 2024. The Canadian interest rate has plummeted from its 5% peak reached in 2023, dragging the central bank's key rate down to 2.75% this March. With Canadian inflation back on the rise, and Canadian housing prices apparently not getting the memo that the BoC is trying to use rate cuts to improve housing affordability, the BoC's window to cut rates may now have closed.

Daily digest market movers: Canadian Dollar catches some bids, but gains remain limited

• The Canadian Dollar rose on Tuesday, climbing a scant one-sixth of one percent against the Greenback.
• Despite near-term gains bolstering the Loonie slightly, the CAD remains down against the the US Dollar in recent weeks.
• Canadian headline CPI inflation rose 1.7% YoY in April, down from the previous 2.3% but still coming in higher than expected.
• The BoC's core Canadian CPI measure accelerated to 2.5% YoY, climbing from the previous period's 2.2%.
• BoC core CPI rose sharply on a monthly basis in April, accelerating to 0.5% MoM compared to March's 0.1%.

Canadian Dollar price forecast

The Canadian Dollar has caught some lift in the near-term, rising 0.7% against the Greenback from last week's lows. However, the CAD remains down sharply against the US Dollar in recent weeks, and USD/CAD bids remain up 1.2% from their multi-month lows near 1.3750.

The 200-day Exponential Moving Average (EMA) is proving to be a hard technical barrier for the USD/CAD pair, parked firmly near 1.4025 level. Price action pivoted into a bullish USD stance in recent weeks, however the pair has thus far shied away from taking a hard run at the key moving average.

USD/CAD daily chart