The USD/CAD currency pair continues to strengthen as the Canadian Dollar (CAD) faces downward pressure ahead of the Bank of Canada’s (BoC) interest rate decision scheduled for Wednesday. During Monday’s Asian trading session, the USD/CAD pair surged above the 1.3800 mark.
Recent economic indicators signal decreasing price pressures, alongside a notable decline in labor growth and household spending, fueling speculation that the BoC may implement a significant interest rate cut of 50 basis points (bps) at its upcoming monetary policy meeting.
Additionally, lower oil prices have contributed to the weakness of the commodity-linked Loonie, as Canada is the largest oil exporter to the United States. Last week, crude oil prices fell by over 7%, driven partly by slowing economic growth in China and easing tensions in the Middle East. As of now, West Texas Intermediate (WTI) crude is trading around $69.00 per barrel.
In contrast, the US Dollar (USD) is receiving support due to diminishing expectations for further aggressive rate cuts by the US Federal Reserve (Fed) in 2024. Last week’s data underscored the resilience of the US economy, bolstering the likelihood of a nominal rate cut by the Fed in November.
According to the CME FedWatch Tool, the probability of a 25-basis-point rate cut in November has surged to 99.3%, up from 89.5% a week prior. This shift in sentiment follows the release of key economic data, which showed a 0.4% increase in US retail sales for September, surpassing the 0.1% gain recorded in August and exceeding expectations of 0.3%. Furthermore, initial jobless claims fell by 19,000 during the week ending October 11, marking the largest decline in three months. The total number of claims has decreased to 241,000, significantly below the anticipated 260,000.
As market participants prepare for the BoC’s decision, the evolving economic landscape and shifts in monetary policy are likely to influence the USD/CAD pair in the coming days.
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