- USD/CAD gathers strength to around 1.3795 in Wednesday’s early European session.
- BoC is expected to cut rates in September due to sharper-than-anticipated economic contraction in Q2.
- Rising debt piles in many major economies boost the safe-haven flows, benefiting the US Dollar.
The USD/CAD pair trades in positive territory for the third consecutive day near 1.3795 during the early European session on Wednesday. The Canadian Dollar (CAD) edges lower against the Greenback as traders weigh the prospects of a Bank of Canada (BoC) interest rate cut this month. The US JOLTS Job Openings and the Fed Beige Book will be in the spotlight later on Wednesday.
Markets signal a BoC rate cut is now more likely as tariffs continue weighing down the Canadian economy. Traders are now pricing in nearly a 55% chance that the Canadian central bank will cut rates in its next decision, up from around a 40% chance last week, according to Reuters.
Following the anticipated September rate cut, BofA analysts expect the BoC to reduce interest rates by another 25 basis points (bps) in October and December, bringing the terminal rate to 2.0%. Rising BoC rate cut expectations this year could undermine the CAD and create a tailwind for the pair in the near term.
The global bond market sell-off is fueling risk aversion, supporting safe-haven currencies like the US Dollar (USD). Investors are concerned about rising debt piles in many major economies. “The risk-off sentiment today is broader market unease stemming from the bond market,” said Marija Veitmane, head of equity research at State Street Markets.
However, a rise in crude oil prices might support the commodity-linked Loonie and cap the upside for the pair. It’s worth noting that Canada is the largest oil exporter to the US, and higher crude oil prices tend to have a positive impact on the CAD value.
