The USD/CAD currency pair is currently grappling with a lack of significant buying interest, primarily due to broad weakness in the US dollar. Expectations for a more substantial interest rate cut from the Federal Reserve, combined with a favorable risk environment, are exerting downward pressure on the dollar. The recent rebound in oil prices this week is also providing support for the Canadian dollar, known as the Loonie.
After a slight dip in the Asian session, the USD/CAD pair is trading around 1.3575, showing little change for the day. The US dollar has fallen to its lowest level in over a week as market sentiment shifts toward the possibility of a larger interest rate reduction by the Federal Reserve during its upcoming meeting. This sentiment has been reinforced by data indicating a decline in inflationary pressures within the US economy. Recent figures revealed that the annual Producer Price Index (PPI) dropped to 1.7%, down from a revised previous reading of 2.1%. Additionally, the core PPI, which excludes food and energy prices, fell short of forecasts, posting a 2.4% year-over-year increase.
Market dynamics have shifted, with traders now pricing in a greater than 40% likelihood of a 50 basis point cut in borrowing costs at the Federal Reserve’s policy meeting on September 17 – 18. This anticipation has kept US Treasury bond yields low, further contributing to the weakening of the dollar. Meanwhile, an upswing in crude oil prices, bouncing back from their lowest levels since June 2023, is likely bolstering the Loonie and limiting upward movement in the USD/CAD pair.
Traders are now awaiting the release of key economic indicators, including the Preliminary Michigan Consumer Sentiment Index from the US and additional data from Canada. The influence of US bond yields and overall market sentiment will play a crucial role in determining USD demand. While modest weekly gains are within reach for the USD/CAD pair, significant buying momentum may only materialize should the pair secure consistent trading above the 1.3600 level.
