• US Dollar regains momentum after selling off following the US CPI.
• Data shows that inflation in the US continued to slow down in April.
• USD/CAD is back at 1.3380 after hitting two-day lows at 1.3333. 

The USD/CAD dropped to 1.3334 after the release of US inflation data and then bounced sharply, erasing all losses. The pair is hovering around 1.3370, flat for the day. 

Focus on US inflation 

In April, the Consumer Price Index (CPI) experienced a slight decline to 4.9% from its previous reading of 5% in March. Similarly, the Core rate exhibited a modest deceleration from 5.6% to 5.5%. These figures closely aligned with market expectations. Initially, the release of the US inflation data prompted a decline in the US Dollar Index, that then recovered notably, largely mitigating the post-CPI losses.

On Thursday more US inflation data is due with the Producer Price Index (PPI). Should there be further indications of inflationary pressures easing, the US Dollar could face additional downward pressure.

In Canada, Wednesday's data release revealed a remarkable surge in Building Permits for March, surpassing expectations of a 2.9% decline with a noteworthy increase of 11.3%; February's figures were revised from 8.6% to a more modest 5.5%.

Resistance at 1.3400

The USD/CAD peaked during the European session at 1.3397, but then started to move to the downside. After US data, the pair tumbled driven by the US Dollar's weakness. Later, it rebounded as the Greenback recovered ground.

Equity prices on Wall Street have receded from their recent highs, with the Dow Jones slipping by 0.39%, while the Nasdaq manages to secure a gain of 0.40%. The US 10-year Treasury yield stands at 3.45%, while the 2-year yield is falling 2% at 3.93%.

If the rebound continues, the USD/CAD will likely encounter resistance at the 1.3400 area. A successful breakthrough above this level would indicate further potential for gains. On the other hand, if it drops below 1.3350, the Loonie will likely strengthen, suggesting a test of the daily low at 1.3333 and then the May low at 1.3312.

Technical levels