The USD/CAD pair is failing to build on the previous day’s recovery from the 1.3570 area, the lowest level since April 10, and is facing renewed selling pressure during the Asian session on Friday. The pair has slid below the 1.3600 mark, continuing its established downtrend observed over the past three weeks.
The US Dollar‘s (USD) rebound on Thursday from its year-to-date low has quickly lost momentum, as markets increasingly anticipate the Federal Reserve (Fed) will soon initiate a cycle of monetary policy easing. This outlook was reinforced by the annual benchmark review of employment data released on Wednesday, which showed US job growth over the past year was weaker than initially estimated. These revelations have reignited concerns about a potential recession in the US, leading to speculation about a possible 50 basis point rate cut by the Fed in September. The dovish expectations have put downward pressure on US Treasury yields and the USD, contributing to the decline in the USD/CAD pair.
On the other hand, expectations that a Fed rate cut could stimulate economic activity and boost demand are providing some support to Crude Oil prices. This, in turn, is bolstering the commodity-linked Canadian Dollar (Loonie) and contributing to the negative sentiment around the USD/CAD pair. However, market concerns about economic slowdowns in both the US and China, as well as hopes for a ceasefire in Gaza, are limiting significant gains in Crude Oil prices. Traders are also likely to hold off on aggressive bearish bets on the USD ahead of Fed Chair Jerome Powell’s upcoming speech, which is expected to offer further insights into future interest rate moves.
As traders await this key central bank event, Canadian Retail Sales data and fluctuations in Oil prices will influence the Canadian Dollar (CAD) and create short-term trading opportunities. Despite these factors, the USD/CAD pair remains on track to record substantial losses for the third consecutive week. The recent breakdown below the critical 200-day Simple Moving Average (SMA) suggests that the path of least resistance for the pair continues to be downward.
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