• Canadian Dollar gives away gains with investors increasingly cautious ahead of US CPI release.
• From a wider perspective, CAD continues searching for direction within previous levels.
• US Inflation and the BoC monetary policy decision, due on Wednesday, are likely to set the USD/CAD’s near-term direction.

The Canadian Dollar (CAD) is trading lower on Tuesday, giving back all the ground taken on Monday. A somewhat more sour market sentiment is boosting the US Dollar across the board, with equities dipping into negative territory and investors focusing on Wednesday’s US Consumer Prices Index (CPI) data.

US inflation is expected to show mixed readings with headline inflation ticking up on the back of higher energy prices. The core CPI is expected to have slowed down, yet at levels well above the Fed’s 2% target for price stability. Investors will analyze these figures with particular attention and, in that sense, an upside surprise might trigger a risk-averse reaction, sending the Loonie to fresh lows.

Shortly afterward, the Bank of Canada (BoC) will release its monetary policy decision. No changes are expected on the benchmark rate, although the soft inflation and employment levels seen last week might prompt the bank to hint toward a rate cut, probably in June. This might add negative pressure to the CAD.