The USD/CAD currency pair gained ground on Thursday, trading around 1.3770 during the early European session, largely due to a robust US Dollar (USD). This strength is attributed to diminishing expectations for significant rate cuts by the Federal Reserve (Fed) following positive labor and inflation data from the United States.
Current market sentiment indicates expectations for a total of 125 basis points (bps) in rate cuts from the Fed over the next year. The CME FedWatch Tool shows a 92.1% likelihood of a 25-basis-point cut in November, with no anticipation of a larger 50-basis-point reduction.
Traders are also closely watching the upcoming US Retail Sales data, set to be released later today. Economists forecast a monthly increase in consumer spending of 0.3% for September, a rise from the previous month’s growth of 0.1%.
Meanwhile, the Canadian Dollar (CAD) faces downward pressure as Canada’s latest inflation report for September reignites expectations of a 50-basis-point rate cut by the Bank of Canada (BoC) at its next meeting. The annual inflation rate fell to 1.6%, the lowest level since February 2021, dropping below the central bank‘s 2% target.
Additionally, a research report from Standard Chartered suggests that the BoC may implement a 50-basis-point rate cut at both of its remaining meetings in 2024, revising its previous expectation of a 25-basis-point reduction. Factors such as slowing economic growth, decreasing inflation, rising inflation expectations, and increased mortgage costs are driving the case for deeper cuts. The revised forecast projects the BoC’s policy rate to reach 3.25% by the end of 2024 and 2.25% by the end of 2025, down from earlier estimates of 3.75% and 3.0%, respectively.
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