USD/CAD surpasses 1.3600 thanks to surprisingly low inflation in Canada

• The USD/CAD pair rises above 1.3600 as Canadian consumer inflation surprisingly decreased in February.
• The BoC's preferred measure of inflation slowed to 2.1% from January's 2.4% year-on-year rate.
• Market sentiment remains bearish amid uncertainty over Fed policy.

The USD/CAD pair shoots above the 1.3600 round resistance early in the New York session on Tuesday. USD/CAD strengthens as February Canadian Consumer Price Index (CPI) turns out surprisingly softer than expected.

The annual headline CPI grew at a slower pace of 2.8% than expectations of 3.1% and the previous reading of 2.9%. On a monthly basis, the headline CPI rose 0.3%, compared to the forecast of 0.6%. The Bank of Canada's (BoC) preferred measure of inflation, which excludes eight volatile items, grew at a steady 0.1% monthly. Core inflation slowed to 2.1% from 2.4% in January.

Weak inflation data could raise expectations that the BoC will cut interest rates sooner than expected. When the BoC considers reducing interest rates, the Canadian dollar faces liquidity outflows.

Meanwhile, the Canadian dollar has also been weighed down by dismal market sentiment. The attractiveness of risk assets weakens amid uncertainty over the Federal Reserve's (Fed) interest rate decision, which will be announced on Wednesday. The Fed is expected to keep interest rates unchanged in the 5.25%-5.50% range. The Dollar Index (DXY) rises to 103.85, as demand for safe-haven assets improves.

Aside from the Fed's policy decision, investors will focus on the dot chart and economic projections. The dot plot shows policymakers' interest rate projections for different time frames.