In Monday’s European session, the USD/CAD pair experienced a notable jump to 1.3660 as market participants grappled with uncertainty, prompting a recovery in the US Dollar (USD) and bolstering the strength of the Canadian Dollar (CAD).
The Loonie strengthened as investors navigated an array of data-packed events in the United States (US), contributing to heightened market uncertainty.
Amidst this backdrop, a positive sentiment emerged following stronger-than-expected China’s Caixin PMI data for May. However, contrasting actions were observed across different assets within the global economy. While risk-associated currencies faced pressure, S&P 500 futures recorded significant gains during the London session. The US Dollar Index (DXY) showed signs of recovery, edging towards 104.70, albeit remaining within Friday’s trading range.
Notably, 10-year US Treasury yields retreated to 4.48% amidst growing market speculation that the Federal Reserve (Fed) could commence interest rate reductions starting from the September meeting. This shift in sentiment towards a potential Fed rate cut stemmed from sluggish growth in US Personal Spending data for April, which expanded at a slower pace of 0.2%, falling short of estimates.
Looking ahead, investors will closely monitor the release of key data points from the US, including ISM Manufacturing and Services PMI, and Nonfarm Payrolls (NFP) data for May. Particularly, today’s focus lies on the Manufacturing PMI data for May, anticipated to show improvement from the previous reading of 49.2. However, any figure below the 50.0 threshold is indicative of contraction.
Meanwhile, attention turns to the Bank of Canada’s (BoC) interest rate decision scheduled for Wednesday, with expectations of a potential rate cut for the first time since March 22. The BoC, which had previously maintained a restrictive policy framework due to Covid-induced inflation, will also provide insights into its rate-cut trajectory beyond the June meeting, influencing movements in the Canadian Dollar.
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