The USD/CAD pair continues to trade in negative territory near 1.3620, marking its lowest level since July 12. Market expectations of a 25 bps rate cut by the US Federal Reserve in September are weighing on the US Dollar. The upcoming FOMC Minutes will provide further insight into the Fed’s interest rate plans.
Recent dovish comments from Fed officials, including Chicago Fed President Austan Goolsbee and Minneapolis Fed President Neel Kashkari, have fueled speculations of a potential rate cut. Investors are now pricing in a 67.5% chance of a 25 bps cut in September, with a decreased likelihood of a 50 bps cut.
On the other hand, Canada’s softer CPI inflation data supports expectations of another rate cut by the Bank of Canada. With a 25 bps cut already priced in for September, further easing in the final two meetings of the year could weigh on the Canadian Dollar and limit downside for USD/CAD.
The latest Canadian CPI inflation report showed a decrease to 2.5% YoY in July, in line with market expectations. The underlying inflation measure also fell, indicating potential room for further rate cuts by the BoC.
Canadian Dollar FAQs
Key factors affecting the Canadian Dollar include interest rates set by the Bank of Canada, oil prices, economic health, inflation, and trade balance. Higher interest rates and oil prices tend to be positive for the CAD, while inflation and weak economic data can lead to depreciation. Monitoring these factors can help understand the direction of the Canadian Dollar.