The USD/CAD currency pair gained some ground near 1.3460, ending a three-day losing streak during the early European session on Wednesday. This recovery is supported by a slight rebound in the US Dollar (USD). Market participants are awaiting further insights from speeches by Federal Reserve officials Christopher Waller and Raphael Bostic later today.
A cautious atmosphere ahead of Nvidia’s earnings report and Fed speeches could drive safe-haven flows, benefiting the USD. However, expectations that the Federal Reserve might reduce borrowing costs in September could limit the pair’s upside potential. The market has fully factored in a 25 basis point rate cut for September, with a 34.5% chance of a deeper cut, according to the CME FedWatch Tool. Traders are anticipating a total of 100 basis points of Fed easing this year.
San Francisco Fed President Mary Daly suggested on Monday that initiating rate cuts is appropriate, a view echoed by Fed Chair Jerome Powell at the Jackson Hole symposium. Powell expressed confidence that inflation is heading towards the 2% target and indicated that it is time for policy adjustments.
Regarding the Canadian Dollar (CAD), economists forecast that the Bank of Canada (BoC) will cut interest rates for the third consecutive meeting at its September 4 policy meeting, based on an August Bloomberg poll. This anticipated rate cut could exert downward pressure on the CAD. Additionally, lower crude oil prices are likely to negatively impact the CAD, as Canada is a major oil exporter to the United States.
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