The Canadian dollar weakened against major peers in European trading on Monday, with markets focused on Canada’s May CPI release due at 12:30 GMT. USD/CAD was up 0.16% at around 1.4180, its highest level in more than a year. Economists expect Statistics Canada to report inflation at 3% YoY versus 2.8% in April, while the monthly print is seen at 0.7% after 0.4%.
The US dollar firmed as markets continued to price further Federal Reserve tightening, and the Dollar Index was up 0.15% near 100.90. CME FedWatch put the probability of at least two Fed rate hikes this year at 58.5%, compared with 17.1% a week earlier. Attention later shifts to the US May PCE price index due on Thursday, while Canada’s CPI tracks changes in a fixed basket of goods and services, with the YoY rate comparing prices with the same month a year earlier.
Canadian Dollar Weakness and May CPI Expectations
The Canadian Dollar is under pressure against the US Dollar today, June 22, 2026, as we await this week’s key inflation data. The upcoming Consumer Price Index (CPI) report for May will be a major focus for the market. Currently, the USD/CAD pair is trading around 1.3750, reflecting ongoing strength in the Greenback.
We are anticipating Statistics Canada to report that year-over-year inflation ticked up to 2.9% from 2.7% in April. However, we don’t expect this slight increase to alter the Bank of Canada’s (BoC) current path of monetary easing. The BoC has signaled that supporting a slowing economy is the priority, having already cut its key interest rate to 3.75% earlier this year.
US Dollar Strength, Fed Policy Divergence, and Market Implications
Meanwhile, the US Dollar is benefiting from a more resilient American economy and a cautious Federal Reserve. Recent data, like the surprisingly strong addition of 210,000 jobs last month, supports the Fed’s “higher for longer” interest rate stance. The CME FedWatch tool shows markets are now pricing in only one rate cut for the remainder of 2026, a significant shift from the three cuts anticipated earlier in the spring.
We see this divergence as an opportunity to position for further upside in USD/CAD over the coming weeks. Buying call options on USD/CAD could be an effective way to capitalize on potential gains while managing risk. All eyes will be on the US Personal Consumption Expenditure (PCE) data later this week, which could further reinforce the Fed’s patient approach.
This setup reminds us of the 2014-2016 period, when a similar divergence between Fed and BoC policy caused USD/CAD to surge from 1.10 to above 1.45. While we don’t expect a move of that magnitude, it shows how powerful this theme can be for the currency pair. Therefore, we believe holding a bullish view on the US Dollar relative to the Canadian Dollar is the prudent stance for now.
