The USD/CAD exchange rate is experiencing a downward trend, with the pair hovering around 1.3740 during the early European session on Tuesday. Despite this, the US Dollar (USD) remains strong due to reduced expectations for a 50 basis point interest rate cut by the US Federal Reserve (Fed) in September.
Recent data from CME’s FedWatch Tool shows a decrease in the probability of a 50 basis point cut in September, dropping to 50% from 85% last week. However, markets still anticipate at least a 25 bps cut at the upcoming meeting.
Investors are keeping an eye on the upcoming release of the US Producer Price Index (PPI) data on Tuesday and Consumer Price Index (CPI) figures on Wednesday to gauge price stability in the United States.
On the other hand, the Canadian Dollar (CAD) faces challenges from lower crude Oil prices, as Canada is a major crude exporter to the US. West Texas Intermediate (WTI) Oil prices have halted their four-day winning streak, currently trading around $78.00 per barrel.
This decline in WTI crude Oil prices is attributed to concerns about demand, following OPEC’s reduction in its 2024 demand growth forecast due to weaker expectations in China.
Furthermore, the Bank of Canada (BoC) is expected to cut interest rates by 25 basis points at both the September and October meetings, which could further weaken the Canadian Dollar.
Analysis:
The USD/CAD exchange rate is currently being influenced by the expectations surrounding the Fed’s interest rate cuts and the fluctuating crude Oil prices. As the Fed is less likely to implement a 50 basis point cut in September, the US Dollar remains strong compared to the Canadian Dollar. However, the CAD faces pressure from lower Oil prices and potential interest rate cuts by the BoC. Investors should monitor upcoming economic data releases and central bank decisions to make informed decisions regarding their investments in the USD/CAD pair.