USD/CAD firms as Greenback steady, Canada CPI in focus

• The Canadian Dollar erases earlier gains, with USD/CAD rebounding toward 1.3800 during the early American session.
• The US Dollar firms modestly ahead of Trump-Zelenskyy talks and a data-heavy week, including Fed minutes and Jackson Hole.
• Traders are cautious ahead of Tuesday’s Canada CPI report, which may influence the Bank of Canada’s policy outlook.

The Canadian Dollar (CAD) surrenders all of its intraday gains against the US Dollar (USD) on Monday, as the Greenback stages a modest recovery ahead of high-profile Trump–Zelenskyy talks later in the day. Market participants refrain from placing aggressive bets ahead of Canada’s July Consumer Price Index (CPI) release due on Tuesday, which could offer fresh cues on the Bank of Canada’s (BoC) policy outlook.

At the time of writing, the USD/CAD pair edges higher, reclaiming the 1.3800 mark during the early American session after bouncing from an intraday low of 1.3783.

The move coincides with a modest rebound in the US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies. The index recovers toward the 98.00 region as the latest US economic data delivered mixed signals, tempering hopes for aggressive monetary policy easing by the Federal Reserve (Fed).

While markets still assign high odds to a 25 basis point rate cut at the Fed’s September meeting, the probability has edged down slightly. According to the CME FedWatch Tool, rate cut odds now stand at around 84%, a pullback from nearly full pricing last week, which could limit further upside in the US Dollar. Traders now turn their attention to the Fed’s July meeting minutes due Wednesday, followed by Chair Jerome Powell’s speech on Friday at the Jackson Hole Symposium for fresh policy cues.

Meanwhile, in Canada, Statistics Canada will release July inflation data on Tuesday, including the Bank of Canada’s preferred core measures, which are likely to play a key role in shaping future policy decisions. Headline CPI is expected to rise 0.4% month-over-month, up from 0.1% in June, while the annual rate is projected to ease to 1.7% from 1.9%, reflecting continued disinflation at the headline level.

At the same time, underlying price pressures are seen holding firm. The BoC Core CPI is forecast to increase 0.4% MoM, accelerating from 0.1%, while the year-over-year rate is expected to remain steady at 2.7%. Broader core CPI (MoM) is also projected to rise 0.3%, underscoring lingering inflation persistence despite the softer headline print.

The data could deliver a mixed signal for the Bank of Canada, which paused its tightening cycle at 2.75% in July. A weaker-than-expected headline CPI may revive rate cut speculation later this year, but sticky core inflation could limit the BoC’s room to maneuver, keeping policymakers on a cautious, data-dependent path.