Daily Currency Update

USD - US Dollar

As we approach the CPI day, the dollar has improved slightly from its position last week, regaining a part of the losses it experienced against major currencies. This improvement is attributed to a decrease in risk appetite, with the market cautiously awaiting the release of February's inflation data today. These figures are anticipated to reveal a steady headline inflation rate of 3.1% on an annual basis, and more notably, a slowdown in the core inflation rate from 0.4% to 0.3% month-over-month and from 3.9% to 3.7% year-over-year.

The consensus among economists is a 0.3% month-over-month increase in core inflation, mainly influenced by the housing sector and rises in insurance and medical costs. However, this rate remains 0.1% higher than what would assure the Federal Reserve of a return to its 2% annual inflation target, indicating that a rate reduction before the June meeting is improbable. Should the core inflation figure come in at 0.2% month-over-month, the dollar could face significant downward pressure. This lower figure would support the recent optimism expressed by Fed Chair Jerome Powell regarding disinflation, leading the market to anticipate a rate cut in June and possibly even in May.

This week had been earmarked for a potential stabilization or modest rebound in the dollar's value, and the outlook for the USD in the near term appears to be leaning towards the positive side.

CAD - Canadian Dollar

In subdued overnight trading, the Canadian dollar has seen a slight increase. The risk appetite appears moderately positive across Asian and European markets, while futures for US equities show mixed results. Meanwhile, crude oil prices have strengthened during the session, which offers some support to the Canadian dollar. External factors continue to play a significant role in the Canadian dollar's performance, and with its current trading position near the fair value estimate of 1.3511, movement in the USD/CAD pair is expected to be influenced by the CPI data release from the US today.