The USD/CAD currency pair extends its sharp decline from the mid-1.3900s—its highest point since October 2022—marking its fifth consecutive day of selling pressure on Thursday. The pair has fallen to the 1.3575-1.3570 range, reaching a four-month low and breaching the crucial 200-day Simple Moving Average (SMA) during the first half of the European trading session.
Investor sentiment appears to be shifting, with increasing expectations that the Federal Reserve (Fed) will begin reducing borrowing costs in September. Market speculation has risen regarding a potential 50 basis points (bps) rate cut next month, following Wednesday’s labor market data, which indicated weaker-than-expected employment figures. This anticipated narrowing of the interest rate differential between the US and Canada is expected to drive investment towards the Canadian Dollar (CAD), putting additional downward pressure on the USD/CAD pair.
Despite bearish trends in Crude Oil prices, which typically undermine demand for the CAD, the USD/CAD pair remains on a downward trajectory. Revised US employment statistics have reignited recession concerns in the US, compounded by ongoing worries about a slowdown in China—both significant factors influencing oil demand. Consequently, Crude Oil prices remain depressed, just above a multi-month low reached on August 5, but this has not alleviated the bearish sentiment surrounding the USD/CAD pair. Even a modest rebound in the US Dollar (USD) has been insufficient to provide support for the pair.
An increase in US Treasury bond yields has provided some temporary relief for the USD, breaking a four-day losing streak to reach a new year-to-date low. However, dovish expectations from the Fed may restrain USD bulls from making aggressive moves ahead of the release of the Weekly Initial Jobless Claims and Existing Home Sales data later today. The primary focus will be on Fed Chair Jerome Powell’s speech on Friday, which is expected to offer significant guidance for the USD/CAD pair.
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