- USD/CAD remains under pressure as the US Dollar falters amid signs of weakness in recent US economic data.
- CME FedWatch Tool indicates that markets are pricing in roughly an 89% probability of a Fed rate cut in September.
- The recent Canadian labor market data reinforced expectations of the Bank of Canada’s interest rate cuts.
USD/CAD inches lower after two days of losses, trading around 1.3750 during the Asian hours on Monday. The pair depreciates as the US Dollar (USD) faces challenges amid recent weakening in US economic data, which prompted traders to price in the possibility of more interest rate cuts this year. Markets are now pricing in approximately 89% odds of a Fed rate cut at the September meeting, as per the CME FedWatch tool.
Fed Governor Michelle Bowman said on Saturday that three interest rate cuts will likely be appropriate this year. Bowman added that the apparent weakening in the labor market outweighs the risks of higher inflation to come.
St. Louis Fed President Alberto Musalem said Friday that US economic activity remains stable but warned of potential risks ahead, noting the Fed could fall short on both its inflation and employment goals, with particular downside risks to jobs. Musalem emphasized that the Fed is currently balancing risks on both sides of its mandate and stressed, per Reuters, that data integrity is critically important to the economy.
Traders will likely await the upcoming US consumer inflation figures due to be published on Tuesday, followed by the release of the preliminary UK Q2 GDP print and the US Producer Price Index (PPI) on Thursday. The key data is expected to offer meaningful momentum to spot prices and guide the next phase of the directional move.
The USD/CAD pair may appreciate as the Canadian Dollar (CAD) could struggle with rising expectations of the Bank of Canada’s (BoC) interest rate cuts. The dovish sentiment was reinforced by recent employment data released on Friday. Statistics Canada reports that the Net Change in Employment showed a loss of 40.8K jobs and an unchanged 6.9 % Unemployment Rate in July.
