The USD/CAD pair maintained its upward trajectory for a third consecutive session, hovering around 1.3760 during European trading hours on Tuesday. The strength of the US Dollar (USD) persists as investors adopt a cautious approach ahead of the Federal Reserve’s (Fed) interest rate decision slated for Wednesday.
Market expectations lean towards the Federal Reserve maintaining interest rates within the 5.25%-5.50% range, aiming to address inflation toward its 2% target. Additionally, projections for US headline and core Consumer Price Index (CPI) figures for May suggest year-over-year increases of 3.4% and 3.5%, respectively.
The robust US jobs report for May has tempered expectations of two Federal Reserve interest rate cuts in 2024. According to the CME FedWatch Tool, the probability of a Fed rate cut in September by at least 25 basis points has declined to nearly 49.0%, down from 59.5% a week earlier.
On the Canadian Dollar (CAD) front, declining crude oil prices exerted pressure on the commodity-linked currency. Canada, being the largest oil exporter to the United States (US), is particularly sensitive to fluctuations in oil prices. West Texas Intermediate (WTI) crude oil is currently trading around $77.30 per barrel.
The optimism surrounding crude oil prices stems from expectations of increased fuel demand this summer. Energy consulting firm Gelber and Associates noted, “Futures are higher as expectations of summer demand are supportive of prices despite the broader macro landscape remaining less optimistic than weeks previous.”
In Canada, the unemployment rate climbed to a more than two-year high of 6.2% in May. However, the economy added more jobs than anticipated, accompanied by notable wage growth. Traders are poised to monitor Bank of Canada (BoC) Governor Tiff Macklem’s speech scheduled for Wednesday at the Conference of Montreal 2024, where he will participate in a panel discussion on inflation.
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