USD/CAD steadies as hot Canadian CPI data trims BoC rate cut bets

• USD/CAD steadies near 1.4030 as hot Canada inflation data tempers BoC cut bets.
• Canada's headline CPI rose 2.4% YoY in September, above forecasts of 2.3%.
• Swap market now prices a 74% chance of a 25-bps BoC rate cut on October 28, down from 86% before the data.

The Canadian Dollar (CAD) steadies against the US Dollar (USD) on Tuesday, with USD/CAD erasing earlier gains following stronger-than-expected September inflation data. At the time of writing, the pair is trading around 1.4030, easing from session highs. However, the downside could be limited amid a firmer Greenback.

Canada's headline Consumer Price Index (CPI) rose 2.4% YoY in September, accelerating from 1.9% in August and above the 2.3% market forecast. On a monthly basis, CPI rose 0.1%, beating expectations and reversing a 0.1% decline in the previous month. The uptick was largely driven by smaller declines in gasoline prices and firmer food costs, suggesting that underlying price pressure remains sticky.

The Bank of Canada's (BoC) core CPI rose 0.2% MoM, after being flat in August, while on a yearly basis, the core CPI rose to 2.8% from 2.6%. The broader core inflation gauge rose 0.3% MoM compared with 0.2% in August.

Following the data, swap market pricing shows the odds of a 25-basis-point (bps) interest rate cut at the BoC's October 28 meeting easing to around 74%, down from 86% before the release.

Meanwhile, declining Oil prices continue to weigh on the commodity-linked Canadian Dollar. West Texas Intermediate (WTI) Crude Oil is hovering near five-month lows around $57 per barrel.

In the United States, easing trade tensions with China has taken attention away from the prolonged government shutdown, now in its fourth week. The improved tone in bilateral relations has lent support to the US Dollar, which remains firm against all major counterparts. The US Dollar Index (DXY) is hovering near one-week highs around 98.84, marking a third straight day of gains. Investors now look ahead to the US Consumer Price Index (CPI) data due on Friday, which could offer fresh clues on the Federal Reserve's (Fed) monetary policy outlook.