Canadian Dollar extends losses as Fed officials remain concerned on inflation

• Loonie weakens amid Trump tariff fears, BoC rate-cut uncertainty
• USD/CAD stays firm above 1.4200 as risk aversion lifts US Dollar.
• Canada’s rising inflation may delay BoC easing, adding uncertainty.
• Fed to pause its easing cycle amid rising inflation.

The Canadian Dollar (CAD) retreats against the US Dollar on Wednesday, with the USD/CAD pair remaining afloat above the 1.4200 handle amid renewed fears about US President Donald Trump’s tariff threats. The lack of Canadian data left traders adrift to the release of the latest Federal Reserve (Fed) monetary policy meeting minutes, which maintained the “status quo” across the financial markets.

The Canadian economic docket was empty, yet the latest round of inflation data witnessed an uptick, indicating that the Bank of Canada (BoC) might re-think twice before easing policy. In the US, Housing Starts in January disappointed investors, though Building Permits showed that construction continued to edge higher, although at an anemic pace.

The Federal Reserve minutes revealed that officials view the risks to their dual mandate as “roughly balanced.” However, some participants expressed concerns that potential shifts in trade and immigration policies could slow the disinflation process. Additionally, officials noted that certain inflation expectation measures have risen in recent months.

Today’s US economic docket will also feature the release of the Federal Reserve’s (Fed) latest monetary policy meeting minutes. On January 27-28, the Fed decided to hold rates firm, pausing its easing cycle as inflation gathered steam. It should be said that Fed Jerome Powell turned slightly hawkish, saying that they’re not in a rush to cut interest rates.

Since then, most Fed officials have turned slightly cautious, adopting a wait-and-see mode regarding inflation.

Daily digest market movers: Canadian Dollar struggles to rally amid mixed US data

• US Housing Starts fell sharply by 9.6% in January, dropping from 1.515 million to 1.366 million, as adverse weather conditions impacted construction activity. 
• In contrast, US Building Permits edged slightly higher, rising 0.1% from 1.482 million to 1.483 million during the same period, signaling resilience in future construction plans.
• Interest rate differentials between Canada and the United States continued to weigh on the Loonie, which remained pressured for the third straight day. The USD/CAD hit a weekly high of 1.4244.
• However, a reversal looms as the BoC might keep rates in check following the release of January’s CPI data. In that outcome, the USD/CAD could aim lower as the Canadian Dollar appreciates versus the Greenback.

USD/CAD price forecast: Canadian Dollar set to appreciate further, despite posting losses

The USD/CAD uptrend lost steam after the pair peaked near 1.4800. Since then, sellers have taken over, pushing prices below the 50-day Simple Moving Average (SMA) at 1.4338 and clearing the January 20 daily low of 1.4260, a crucial level for buyers. Further downside lies ahead if bears push spot prices below the 100-day SMA at 1.4111.

Otherwise, if buyers lift USD/CAD past 1.4300, they must reclaim the 50-day SMA to remain hopeful of higher prices.