USD/CAD falls to 1-week lows after US CPI, remains above 1.3650

• USD/CAD falls for the third day in a row and dips to a one-week low on Tuesday.
• The dollar trims its modest gains in reaction to the US CPI report and puts pressure.
• Falling oil prices could undermine the Loonie and help limit any further decline.

He USD/CAD extends its recent pullback from the 1.3860 zone, or its highest level since October 2022, and remains under some selling pressure for the third day in a row on Tuesday. The intraday drop picks up after the publication of US consumer inflation figures and drags the pair to its lowest in one week, around the 1.3660 zone during the early hours of the American session.

The US Bureau of Labor Statistics reported that the headline CPI rose 0.4% in February, up from 0.5% the previous month, and the annual rate slowed to 6.0% from 6.4%. The data reaffirms market expectations that the Federal Reserve could slow down, or even pause, its cycle of rate hikes as a result of tensions in the US banking system, which, in turn, puts some pressure on the dollar and turns out to be a key factor weighing on the USD/CAD pair.

That said, the core CPI, which excludes food and energy price volatility, came in at 0.5% m/m, beating estimates of 0.4%. Beyond this, easing fears of a broader systemic crisis and momentum in risk appetite continue to support an intraday recovery in US Treasury yields, lending some support to the USD. Also, falling oil weakens the commodity-linked Loonie and could act as a tailwind for the USD/CAD pair.

This, coupled with the fact that the Bank of Canada (BOC) became the first major central bank to pause its rate hike cycle last week, supports the prospects for some dip buying to emerge around the USD pair. /exp. Therefore, it would be prudent to wait for strong follow-on selling before confirming that the recent positive move seen over the past month has run its course and positioning for any significant corrective decline for the pair.

technical levels