The USD/CAD currency pair broke its winning streak, trading around 1.3810 during the Asian session on Friday, after reaching an eight-month high of 1.3849 on Thursday. This decline is attributed to a weakening US Dollar (USD) as market participants await the release of the US Personal Consumption Expenditures (PCE) Price Index for June.
Despite the recent downturn, the USD may find support due to robust US economic data, which have diminished expectations for a rate cut in September. On Thursday, the US Gross Domestic Product (GDP) for the second quarter (Q2) exceeded forecasts, growing at an annualized rate of 2.8%, up from the previous 1.4% and surpassing the anticipated 2%. This follows Wednesday’s stronger US PMI data, which showed faster expansion in private-sector activity for July and highlighted the resilience of US economic growth amid high interest rates.
The Composite PMI increased to 55.0 from the prior 54.8, marking the highest level since April 2022 and indicating sustained growth over the past 18 months.
In contrast, the Canadian Dollar (CAD) faces potential limitations due to the Bank of Canada’s (BoC) recent monetary policy decisions. Following a 25 basis point rate cut on Wednesday, the BoC reduced its benchmark interest rate to 4.5% for the second consecutive meeting. The BoC cited progress in reducing inflation as a key factor in its decision.
BoC officials noted that excess supply and a cooling labor market justified the rate cut, aiming to stabilize consumer prices at 2% by 2025. Financial markets are anticipating an additional 25 basis point rate cut later this year, with nearly 60% odds that the BoC will lower rates again in its September meeting. This expectation may limit the CAD’s strength, providing some support for the USD/CAD pair.
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