The USD/CAD pair retreats in the early European session, hovering near 1.3550 following Tuesday’s surge. The decline in the US Dollar (USD) is attributed to reduced US Treasury yields, which in turn weakens the USD/CAD pair.

The Canadian Dollar (CAD) appears to have strengthened against the US Dollar, potentially supported by higher Crude oil prices. West Texas Intermediate (WTI) oil price trades around $77.50 per barrel, poised to extend its winning streak despite facing intraday losses. On Tuesday, the USD/CAD pair surged by 0.85%, propelled by unexpected upside in US inflation for January. Market sentiment shifts significantly, with expectations of no rate adjustment by the Federal Reserve in March surging to 93%, while investors consider the possibility of a rate cut by the Federal Reserve (Fed) in June.

US headline Consumer Price Index (CPI) surpassed expectations, registering at 3.1%, slightly lower than the previous 3.4%. The US Core CPI (YoY) remained unchanged at 3.9%, contrary to the anticipated decline to 3.7% in January.

Recent Canadian employment data paints a healthier picture of the labor market, potentially delaying the Bank of Canada’s (BoC) rate cut forecasts from April to June. However, BoC Governor Tiff Macklem indicates a shift in focus towards discussing the duration of current interest rate levels, rather than debating their sufficiency.

Trade Idea:

Monitor USD/CAD for potential short positions as the pair retreats amid a weakening US Dollar and strengthening Canadian Dollar, with a focus on key support levels for entry opportunities.