USD/CAD drops as hot Canada CPI reduces BoC rate cut odds

The USD/CAD pair has declined by 0.6% (75 pips) to 1.3320 as the Canadian dollar strengthens following the release of Canada's April CPI data. Headline inflation came in at 4.4% year-over-year, exceeding the consensus estimate of 4.1% and the Bank of Canada's target of 2%. Core CPI also surpassed expectations at 4.1%. The robust inflation figures have diminished the likelihood of a Bank of Canada interest rate cut at the June meeting, previously priced at a 40% probability. Conversely, the US dollar faces pressure as investors reevaluate the Federal Reserve's rate hike path. USD/CAD has broken below the key 1.3350 support level, exposing the pair to further downside. Traders now eye the 1.3300 psychological level, with a breach potentially triggering a deeper correction. However, a resurgence of US economic strength or a dovish shift in BoC rhetoric could limit the Canadian dollar's gains.