The USD/CAD currency pair posted modest gains near 1.3880 during early European trading hours on Monday. The Canadian Dollar (CAD) faces downward pressure due to falling crude oil prices, which weigh on this commodity-linked currency. Conversely, the US Dollar (USD) may receive support from safe-haven flows, potentially limiting further gains for the pair. The key event for the day is the release of the US ISM Services Purchasing Managers Index (PMI).
Geopolitical tensions in the Middle East, particularly the heightened risk of conflict involving Iran and Hezbollah, could bolster the USD as a safe-haven asset. US Secretary of State Tony Blinken warned G7 counterparts on Sunday that attacks on Israel could commence as early as Monday, according to Axios sources.
Nevertheless, recent weaker US employment data might dampen expectations for Federal Reserve rate hikes, potentially pressuring the Greenback. The Labor Department reported on Friday that July’s Nonfarm Payrolls (NFP) rose by 114,000, falling short of the revised 179,000 in June and below the forecast of 185,000. Additionally, the US Unemployment Rate climbed to 4.3% in July from 4.1% in June, marking the highest level since November 2021.
On the Canadian side, speculation about a potential interest rate cut by the Bank of Canada (BoC) could further undermine the CAD. Market expectations suggest a nearly 60% chance of a 25 basis point rate cut in the BoC’s September meeting. Furthermore, declining crude oil prices, given Canada’s role as a major oil exporter to the US, may exert additional pressure on the Loonie in the near term.
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