During Asian trading hours on Monday, the USD/CAD pair maintained its upward trajectory around 1.3655, marking the third consecutive day of gains. The US Dollar (USD) strengthened amidst risk aversion, bolstering the pair’s uptick. However, potential gains may be limited by growing speculation that the US Federal Reserve (Fed) could initiate interest rate cuts starting in September.
The USD benefited as a safe-haven currency following reports of a failed assassination attempt on US Presidential candidate Donald Trump during a rally in Pennsylvania on Saturday. The incident, which resulted in casualties, contributed to political uncertainty and heightened demand for the USD.
Meanwhile, recent data from the Bureau of Labor Statistics showed that wholesale inflation in the US surpassed expectations in June. The Producer Price Index (PPI) rose to 2.6% year-over-year, exceeding the previous figure of 2.4% and surpassing the estimated 2.3%. The core PPI also saw a significant increase of 3.0% year-over-year, outpacing expectations.
Despite stronger inflation data, market focus remains on the potential for Fed rate cuts, which could exert downward pressure on the Greenback in the near term. According to the CME Fedwatch Tool, there is now over a 90% likelihood of a 25 basis points rate cut in September, up from 85% previously anticipated.
Looking ahead, traders are monitoring key economic indicators such as the NY Empire State Manufacturing Index for July and a speech by the Fed’s Mary Daly later in the day. On the Canadian Dollar (CAD) front, expectations of further interest rate cuts by the Bank of Canada (BoC) are putting pressure on the CAD. However, the CAD’s losses are tempered by sustained gains in crude oil prices, with Canada being a major exporter to the US.
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