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- USD/CAD edges higher to around 1.3980 in Friday’s early Asian session.
- The annual US PPI inflation rate was the highest since November 2022.
- BoC left the interest rates unchanged at its June meeting on Wednesday.
The USD/CAD pair gains traction to near 1.3980 during the early European trading hours on Friday, bolstered by hot US inflation data. Traders will closely monitor the developments surrounding the US-Iran peace deal. The preliminary reading of the Michigan Consumer Sentiment Index for June is due later on Friday.
Data on Thursday showed US Producer Price Index (PPI) inflation rose more than expected in May, leading to the largest annual gain in three and a half years as the Middle East conflict drove up the cost of energy products.
The Fed is clearly missing its inflation target by a lot more than it is missing its employment objective,” said John Ryding, chief economic advisor at Brean Capital. “The PPI report should further embolden those on the FOMC who think a rate hike might be needed later in the year,” Ryding added.
US President Donald Trump said on Thursday that the US and Iran could sign a peace deal as soon as this weekend that would reopen the Strait of Hormuz to shipping. Iran countered that it had not reached a final decision on an agreement. However, uncertainty remains high amid ongoing tensions in the Middle East.
US forces intercepted and shot down two Iranian one-way attack drones near the Strait of Hormuz on Thursday after Iran attempted to target commercial vessels transiting the waterway, per Fox News. The Islamic Revolutionary Guard Corps (IRGC) said that the country is stronger than ever and ready to deliver a “decisive, immediate, painful and regret-inducing response” to any aggression.
On the Loonie front, the Bank of Canada (BoC) on Wednesday decided to hold its key interest rate unchanged as expected and said it was seeing limited evidence that higher energy prices were fueling broad-based inflation.
Nonetheless, BoC Governor Tiff Macklem reiterated that the bank would not hesitate to raise rates if need be to keep inflation in check. “The Governing Council is continuing to look through the war’s near-term impact on headline inflation but will not let higher energy prices become persistent inflation,” according to the BoC statement.
