USD/CAD extends gains, nears 1.3900 ahead of the US inflation release

• The US Dollar rallies for the third consecutive day against the Loonie and reaches three-week highs near 1.3900.
• Soft US PPI data has eased concerns of stagflation and provided additional support to the USD.
• The CAD is struggling amid weak domestic data and low Crude Oil prices.

The US Dollar extends gains for the third consecutive day against its Canadian counterpart. The Greenback appreciates across the board on Thursday and has pushed the USD/CAD to fresh three-week highs, a few pips below 1.3900, after bouncing at 0.8790 lows earlier this month.

The focus today is on August's US Consumer Prices Index figures, which are expected to confirm the moderate inflationary pressures anticipated by the Producer Prices Index reading seen on Wednesday, and pave the path for a Fed rate cut next week.

The US Dollar remains firm despite soft Inflation data

Consumer prices are expected to have ticked up to a 0.3% monthly rise and 2.9% year-on-year, from the previous month's 0.3% and 2.7% respective readings. The core inflation, more relevant to the Fed, as it strips out seasonal influences from food and energy, is expected to have remained steady at 0.3% on a month-on-month basis and 3.1% year-on-year.,

On Wednesday, producer prices data revealed that inflation at the factory gate contracted 0.1% unexpectedly and eased to a 2.6% yearly growth in August, against market expectations of 0.7% and 3.3% respectively. These figures have eased concerns of stagflation, and the markets' relief is underpinning the US Dollar's recovery on Thursday.   

The Canadian Dollar, on the contrary, is struggling amid a combination of weak domestic data and low Oil prices. Canadian employment figures released last week revealed a sharp deterioration of the labour market, and the Ivey PMI dropped to levels close to stagnation, which has boosted hopes that the Bank of Canada will cut interest rates further at its September meeting.