During the early European session on Tuesday, the USD/CAD pair traded around 1.3745, showing a stronger trend supported by a firmer U.S. Dollar and higher U.S. Treasury bond yields.
The U.S. Dollar’s uptick is bolstered by increased optimism in the market, alongside rising U.S. Treasury bond yields. Meanwhile, traders are closely eyeing key economic indicators and speeches later in the day.
In Canada, the S&P Global Manufacturing Purchasing Managers Index (PMI) for June is anticipated to improve to 50.2 from May’s 49.3, potentially influencing market sentiment around the Canadian Dollar (CAD).
Federal Reserve (Fed) Chairman Jerome Powell’s upcoming speech is also poised to impact market dynamics, especially following weaker-than-expected U.S. ISM Manufacturing PMI data for June. This data supports expectations of a Fed interest rate cut in September, with traders now pricing in a 68% likelihood, up significantly from previous months according to the CME FedWatch tool.
San Francisco Fed President Mary Daly emphasized the Fed’s data-dependent stance, refraining from outlining a specific policy trajectory despite recent softer U.S. economic indicators. This cautious approach continues to bolster the USD in the near term.
On the Canadian front, the Bank of Canada (BoC) recently cut interest rates to 4.75% on June 5, marking the first rate cut among G7 nations in the current economic cycle. BoC Governor Tiff Macklem indicated readiness for further cuts but stressed limits to divergence from Fed policies.
Douglas Porter, chief economist at BMO Economics, noted expectations for a series of rate cuts from the BoC, contingent upon inflation stabilization throughout the year.
Market participants await further economic data and central bank communications to gauge the trajectory of the USD/CAD pair amid evolving global economic conditions.
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