The USD/CAD currency pair is trading with a bearish bias around 1.3620, marking its lowest level since July 12 during the early European session on Wednesday. The US Dollar (USD) remains under pressure due to growing expectations that the US Federal Reserve (Fed) may begin an interest rate easing cycle in September. Investors are now keenly awaiting the release of the Federal Open Market Committee (FOMC) Minutes later today for further insights into the Fed’s future interest rate plans.
The decline in the Greenback has been driven by dovish signals from Fed officials and the anticipation of upcoming rate cuts. Chicago Fed President Austan Goolsbee indicated earlier this week that the US economy shows no signs of overheating, suggesting that the Fed should avoid maintaining a restrictive policy longer than necessary. Similarly, Minneapolis Fed President Neel Kashkari remarked on Monday that it is appropriate to consider a potential rate cut in September, citing concerns over a weakening labor market.
Market sentiment reflects these developments, with investors now pricing in a 67.5% chance of a 25 basis points (bps) rate cut by the Fed in September. The likelihood of a more substantial 50 bps cut has decreased to 32.5%, down from 53.0% just a week ago.
On the Canadian side, softer inflation data is bolstering the case for further rate cuts by the Bank of Canada (BoC). Traders are already fully pricing in a 25 bps cut for September, with an additional 50 bps of easing anticipated across the BoC’s final two meetings of the year. This could potentially weigh on the Canadian Dollar (Loonie) and limit the downside movement of the USD/CAD pair.
According to data released by Statistics Canada on Tuesday, the Canadian Consumer Price Index (CPI) inflation rate eased to 2.5% year-over-year in July, down from 2.7% in June, aligning with market expectations. The BoC’s closely watched Core CPI, which excludes volatile items, also dropped to 1.7% year-over-year in July from 1.9% in the previous month.
This mix of factors continues to influence the USD/CAD dynamics, with the pair’s movement closely tied to upcoming economic data and central bank decisions.
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