USD/CAD holds gains above 1.3815 with US PCE Inflation on tap

The US Dollar stands tall, favoured by solid US data and a hawkish Fed.

The BoC kept rates on hold on Wednesday but left the door open for a rate cut.

Later today, the PCE Price Index is expected to show sticky inflation levels.

The US Dollar has pulled back from two-month highs at 1.3840 against the Canadian Dollar, as the impact from the Fed and the BoC monetary policy decisions vanished. Still, downside attempts have been contained at 1.3815 so far, with the Greenback supported ahead of June's US PCE Prices Index release.

On Wednesday, the Federal Reserve provided an additional boost to an already strong USD, shrugging off pressures to cut rates from US President Trump, keeping interest rates unchanged, and refusing to signal any monetary easing in the near term. Powell said that it might take months before the economic impact of Trump's tariffs emerges, crushing investors' hopes of a rate cut in September.

US GDP and ADP Employment data beat expectations

Somewhat earlier, US preliminary Gross Domestic Product data for the second quarter and ADP employment confirmed a resilient economy and a healthy labour market, giving fresh reasons for the Fed to be patient about rate cuts.

A few hours earlier, the Bank of Canada also left its benchmark interest rate on hold at 2.75%. Governor Macklem noted that the economy remains resilient despite the volatile global context and that inflation remains stubbornly high, but he also said that interest rates could be lowered, if needed, which added some negative pressure on the loonie.

Today, the main focus will be on the US PCE Prices Index report that is expected to show a slight pick up on the headline inflation, with the core reading, more relevant from the monetary policy perspective, steady at levels closer to 3% than to the bank's 2% target for price stability.