The USD/CAD pair is trading in positive territory around 1.3560 during the Asian session on Monday. However, the US Dollar (USD) faces potential challenges due to increasing expectations for additional rate cuts by the US Federal Reserve (Fed) in 2024. According to the CME FedWatch Tool, there is a 50% probability of a 50 basis point rate cut, bringing rates to a range of 4.0-4.25% by year-end.
Despite this, the USD has shown resilience as Treasury yields recover from recent declines. The US Dollar Index (DXY) is holding steady around 100.80, with 2-year and 10-year Treasury yields at 3.59% and 3.74%, respectively.
Philadelphia Fed President Patrick Harker remarked on Friday that the central bank has effectively navigated a challenging economic landscape, likening monetary policy to driving a bus where balance is key.
In Canada, retail sales experienced a robust rebound, rising by 0.9% month-over-month to $66.4 billion in July, surpassing expectations of a 0.6% increase. This marked the strongest growth in Canadian retail turnover since April 2023, with gains seen in seven of nine subsectors, particularly in motor vehicle and parts sales. This positive data could temper calls for aggressive rate cuts by the Bank of Canada (BoC).
Additionally, the Canadian Dollar (CAD) may find support from rising crude oil prices. West Texas Intermediate (WTI) crude is trading near $71.50, driven by concerns over potential supply disruptions amid escalating tensions in the Middle East.
Recent conflict has intensified, with Hezbollah and Israel exchanging heavy fire. The Lebanese militant group launched missiles deep into northern Israel following significant bombardments, marking some of the most severe violence in nearly a year, according to reports from CNN.
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