USD/CAD gathers strength above 1.3850 as US CPI inflation data looms

• USD/CAD holds firm around 1.3875 in Thursday's early European session. 
• BoC rate cut expectation picks up steam, weighing on the Canadian Dollar. 
• The US CPI inflation report for August will take center stage later on Thursday. 

The USD/CAD pair extends its upside to near 1.3875 during the early European session on Thursday. Rising bets that the Bank of Canada (BoC) would resume its easing cycle undermine the Canadian Dollar (CAD) against the Greenback. All eyes will be on the US Consumer Price Index (CPI) for August, which will be published later on Thursday. 

The Canadian economy lost 66,000 jobs in August, a sharp contrast to market expectations for a modest gain in employment numbers. The country's Unemployment Rate edges higher to 7.1% during the same period, boosting the odds of a BoC rate reduction and weighing on the Loonie. 

The Canadian central bank is widely expected to lower its key interest rate at its September policy meeting, with most economists anticipating a 25 basis points (bps) cut. Most economists believe a September rate cut won't be the last of the BoC's monetary easing in 2025, according to a recent Reuters poll. 

"The market is readying itself for a Bank of Canada rate cut," said Amo Sahota, a director at Klarity FX in San Francisco. "That's weighing on the loonie just a little bit, but not by a sufficient amount to get us really motoring along," added Sahota.

The Bureau of Labor Statistics will publish the CPI inflation report later in the day, which is expected to show an increase of 2.9% YoY in August, up from 2.7% in July. Meanwhile, the core CPI is projected to show a rise of 3.1% YoY in August, the same rate as in July, and tied for the highest since February. In case of a surprise softer US inflation, this could drag the USD lower in the near term.