USD/CAD remains below 1.3700 ahead of CPI data from US, Canada

• USD/CAD remains subdued ahead of the inflation data from both countries.
• The US inflation rate is expected to rise to 2.7% year-over-year in June, up from 2.4% recorded in May.
• Canada's CPI is expected to increase by 1.9% YoY in June, up from 1.7% in May.

USD/CAD edges lower after two days of gains, trading around 1.3690 during the European hours on Tuesday. The pair depreciates as the US Dollar (USD) remains subdued ahead of June's US Consumer Price Index (CPI) figures. The inflation data will provide new ideas surrounding the Federal Reserve's (Fed) monetary outlook.

The US inflation rate is anticipated to accelerate to 2.7% year-over-year in June, following the 2.4% increase in May. The monthly inflation is expected to rise to 0.3%, up from the 0.1% previous rate. Meanwhile, Core CPI is likely to increase by 3% YoY, and monthly core inflation may climb to 0.3%, up from 0.1% prior.

However, the downside of the USD/CAD pair could be limited as the US Dollar may regain its ground due to new tariff threats following the US President Donald Trump's latest threat to impose "very severe" tariffs on Russia if no peace deal is reached within 50 days. Additionally, Trump also confirmed that European allies will purchase billions of dollars' worth of American-made weapons, including Patriot missile systems, which will be transferred to Ukraine.

The commodity-linked Canadian Dollar (CAD) could face challenges as crude Oil prices continue to depreciate amid easing concerns over potential supply. This follows US President Donald Trump giving Russia a 50-day deadline to agree to a ceasefire. Trump threatened Russia on Monday to end its war in Ukraine within that time frame or face tariffs of up to 100%.

On Canada's side, the CPI for June, due on Tuesday, is anticipated to rise by 1.9% year-over-year, above May's 1.7%. Inflation may have increased by 0.1% in June, easing from the 0.6% rise in May. The upcoming CPI data is expected to offer the Bank of Canada (BoC) fresh insights into inflation trends, which will help guide its interest rate decisions.