In today’s Asian session, the USD/CAD pair is seen dropping to near 1.3460. This decline is attributed to the US Dollar’s struggle to maintain its recovery from the previous day. The US Dollar Index (DXY) has slipped from 101.18 after bouncing back from its yearly low of 100.50.

Investors are closely watching the upcoming core Personal Consumption Expenditure (PCE) price index data for July, which is set to be released on Friday. The PCE report is expected to show a year-on-year core inflation increase of 2.7% from June’s 2.6%, with monthly figures rising by 0.2%. This data will play a crucial role in shaping market expectations for the Federal Reserve’s September monetary policy decisions.

Market sentiment currently leans towards the Fed implementing interest rate cuts in September. However, there is uncertainty regarding the magnitude of the rate cut, with some expecting a gradual reduction while others anticipate a more significant decrease.

Looking at the Canadian Dollar (CAD), investors are awaiting the release of the monthly and Q2 Gross Domestic Product (GDP) data on Friday. Projections suggest that the economy may have only marginally expanded in June, following a 0.2% growth in May. Annualized GDP growth is expected to slow down to 1.6% from the previous 1.7%. A weaker economic outlook could lead to further interest rate cuts by the Bank of Canada (BoC).

Analysis:

The USD/CAD pair is facing downward pressure as the US Dollar struggles to maintain its recovery. Market focus is on upcoming inflation data and GDP reports, which will play a significant role in shaping monetary policy decisions by the Federal Reserve and the Bank of Canada. Investors are anticipating interest rate cuts in both countries, with potential implications for currency valuations and economic outlooks.

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