USD/CAD Surges Toward 1.4340 Following Hotter-Than-Expected US Inflation Data

The USD/CAD pair rose sharply to around 1.4340 after the release of January’s US Consumer Price Index (CPI) report, which showed inflation accelerating beyond expectations. The US core CPI unexpectedly increased to 3.3% year-over-year, reinforcing concerns about persistent price pressures.

Adding to the Canadian Dollar’s weakness, US President Donald Trump’s decision to impose a 25% tariff on steel and aluminum imports has weighed on market sentiment, given Canada’s status as the largest aluminum exporter to the US.

During North American trading hours on Wednesday, the US Dollar (USD) strengthened significantly against the Canadian Dollar (CAD) following the CPI release. The headline annual CPI rose to 3%, exceeding both estimates and December’s 2.9% reading. Meanwhile, core inflation—which excludes food and energy—climbed to 3.3% from 3.2%, surpassing economists’ expectations of 3.1%.

On a monthly basis, headline and core inflation increased by 0.5% and 0.4%, respectively, both surpassing the forecasted 0.3%.

The unexpected inflation surge has led traders to scale back expectations for a Federal Reserve interest rate cut in June. The CME FedWatch Tool now places the probability of a June rate cut at nearly 35%, down from 49% on Tuesday.

On Tuesday, Federal Reserve Chair Jerome Powell reiterated before Congress that the central bank is in “no hurry to cut interest rates,” citing strong economic growth and persistent inflationary pressures.

At the same time, the Canadian economy faces challenges due to the newly announced US tariffs, which could significantly impact trade relations and economic growth.