The USD/CAD currency pair has rebounded from a minor dip during the Asian trading session and is currently trading around 1.3575, showing little change for the day. Despite this stability, significant gains for the USD appear unlikely at this time.
The US Dollar (USD) has fallen to a one-week low due to mounting expectations for a substantial interest rate cut by the Federal Reserve (Fed) in the upcoming meeting. This sentiment is supported by recent data indicating easing inflationary pressures in the US. On Thursday, the Producer Price Index (PPI) for August showed a decrease to 1.7% from the previously revised 2.1%. Additionally, the core PPI, excluding volatile food and energy prices, registered at 2.4% year-over-year, falling short of forecasts.
Market reactions to this data have led to an expectation that there is over a 40% chance the Federal Reserve will reduce borrowing costs by 50 basis points at its September 17-18 policy meeting. This anticipation has kept US Treasury bond yields near their 2024 lows. Combined with a favorable risk sentiment, this has put pressure on the USD and created headwinds for the USD/CAD pair. Meanwhile, a recovery in crude oil prices, which recently hit their lowest levels since June 2023, supports the Canadian dollar and helps to limit gains for the USD/CAD pair.
Looking ahead, traders will be closely monitoring Friday’s economic releases, which include the Preliminary Michigan US Consumer Sentiment Index and additional data from Canada. The direction of US bond yields and overall risk sentiment will also play a critical role in determining USD demand. Oil price fluctuations may offer short-term trading opportunities for the USD/CAD pair. Despite the current steady trade, the pair is expected to show modest weekly gains, with bullish movements requiring a clear break above the 1.3600 level before initiating new positions.
Related Topics:
