The USD/CAD pair continues to strengthen, trading near 1.3715 in Thursday’s Asian session. The decline in crude oil prices is weighing on the commodity-linked Canadian Dollar (CAD), leading to a rise in USD/CAD. With limited economic data from Canada, the pair is influenced by USD price dynamics, with the upcoming US Retail Sales report being a key focus on Thursday.
The recent US Consumer Price Index (CPI) inflation report showed a decrease to 2.9% YoY in July from 3% in June, which was lower than expected. Despite this, speculation of a larger rate cut by the Federal Reserve has eased, with traders now pricing in a 41% chance of a 50 bps rate cut in September. This has provided some support to the US Dollar.
In contrast, many economists anticipate the Bank of Canada (BoC) to implement further interest rate cuts in the remaining policy-setting meetings of 2024, starting in September. This could add pressure on the CAD in the near future. Additionally, lower crude oil prices, a key export for Canada, are likely to continue weighing on the CAD.
Analysis Breakdown:
- USD/CAD Pair: The exchange rate between the US Dollar and Canadian Dollar is currently favoring the USD due to lower oil prices and economic speculations.
- US CPI Inflation: The US inflation rate dropped to 2.9% YoY in July, impacting market expectations and potential Fed rate cuts.
- Bank of Canada (BoC): Anticipated interest rate cuts by the BoC could weaken the CAD further in the coming months.
- Crude Oil Prices: Lower oil prices are negatively affecting the CAD as Canada’s primary export is crude oil.