USD/CAD fell to near 1.3925 in early Asian trading on Wednesday. The U.S. dollar (USD) weakened against the Canadian dollar (CAD) after inflation data came in below market expectations.

Data released by the U.S. Bureau of Labor Statistics (BLS) on Tuesday showed that the Consumer Price Index (CPI) rose 2.3% year-on-year in April, compared with 2.4% in March. The reading was below market expectations of 2.4%. The dollar weakened in an immediate reaction to the weaker-than-expected inflation report.

Meanwhile, the core CPI, which excludes more volatile food and energy prices, rose 2.8% year-on-year in April, in line with the previous reading and expectations of 2.8%. Both CPI and core CPI rose 0.2% month-on-month in April.

However, optimism that a tariff deal between the United States (US) and China could ease the trade war between the two largest economies prompted traders to lower their expectations for a recession. This in turn provided some support to the dollar in the short term.

On the Canadian dollar front, a sustained rise in crude oil prices could boost the commodity-linked Canadian dollar and limit upside for the pair. It’s worth noting that Canada is the largest exporter of oil to the United States, and higher crude prices tend to have a positive impact on the value of the Canadian dollar.