The USD/CAD currency pair continues its upward momentum, extending gains for the seventh consecutive day on Thursday. This marks a significant trend, with the pair showing positive movement on ten out of the last eleven days, reaching its highest level since April 17, around the 1.3820 region during the Asian session.
Crude Oil Prices and BoC Policy Influence USD/CAD
Crude oil prices remain near a one-and-a-half-month low, following concerns about weakening demand from China, the world’s largest oil importer. This, combined with the Bank of Canada’s (BoC) dovish outlook, has put pressure on the commodity-linked Canadian dollar (Loonie) and bolstered the USD/CAD pair. On Wednesday, the BoC cut its key policy rate by 25 basis points for the second consecutive month and indicated the possibility of further rate reductions if inflation aligns with forecasts.
Additionally, the BoC revised its 2024 growth forecast down to a subdued 1.2% from April’s prediction of 1.5%. The central bank reiterated its expectation for inflation to sustainably return to the 2% target by the second half of 2025. Market reactions have priced in over a 52% probability of another rate cut at the BoC’s next meeting in September. This dovish outlook has largely overshadowed a minor decline in the US dollar (USD) and supports the continued appreciation of the USD/CAD pair.
Anticipation of Fed Rate Cuts and Key Economic Data
Traders are cautious, awaiting the Federal Reserve’s (Fed) potential rate cuts expected in September, which may influence their trading decisions ahead of crucial US economic data releases. The Advance US Q2 GDP report is scheduled for later on Thursday, followed by the Personal Consumption Expenditures (PCE) Price Index on Friday. These reports are expected to significantly impact the Fed’s policy trajectory and subsequently affect USD demand. Oil price movements will also play a critical role in shaping the future direction of the USD/CAD pair.
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