**USD/CAD Dips Toward 1.3730 as Fed Officials Signal Potential Rate Cuts in 2024**
*Original reporting credit: FXStreet News.*
The US dollar (USD) fell further against the Canadian dollar (CAD) during early Asian trading hours on Wednesday, August 7, 2024, with the USD/CAD currency pair dropping toward the 1.3730 level. This movement comes after more dovish commentary from multiple US Federal Reserve officials, who have expressed support for initiating interest rate cuts before the end of 2024. Investors and traders responded to these signals by adjusting expectations for the trajectory of US monetary policy, resulting in renewed weakness in the USD.
The prospect of a looser monetary stance in the United States, particularly against a backdrop of cooling inflation and weaker labor market signals, has caused US bond yields to fall and the greenback to lose its recent upward momentum. Meanwhile, the Canadian dollar received some relative support owing to higher crude oil prices and a hawkish tilt from the Bank of Canada (BoC).
Below is an in-depth breakdown of the recent developments in the foreign exchange market and key drivers influencing the USD/CAD exchange rate.
## Summary of USD/CAD Movement
– The USD/CAD pair declined during early Asian hours and traded around the 1.3730 area.
– Dovish remarks by multiple Fed policymakers have pressured the US dollar.
– Oil prices have seen marginal gains, supporting the resource-linked Canadian dollar.
– Bond yields in the United States continue to moderate, further reducing demand for USD.
– The market is now more confident that rate cuts may begin in Q4 2024, barring any fresh inflation surprises or labor market shocks.
## A Closer Look at Fed Officials’ Comments
Several prominent Federal Reserve members recently made public statements hinting at rate cuts ahead, helping to fuel the latest downward move in USD/CAD. Among them were Fed Board Governor Michelle Bowman and New York Fed President John Williams.
– **Governor Michelle Bowman** stated that while inflation remains above the central bank’s 2% target, she would support rate cuts if price pressures continue to ease and economic growth slows in line with projections.
– **New York Fed President John Williams** commented that monetary policy is currently in a good place and that reducing interest rates later this year could be appropriate if inflation shows “sustained progress” towards the Fed’s target.
– These remarks come on the heels of more cautious messaging seen in the FOMC’s July minutes, where participants noted increasing risks to both sides of the dual mandate: stable prices and full employment.
Markets interpret this coordinated shift in tone as a sign that the Fed is preparing for a possible policy pivot. The statements have also led investors to reprice expectations regarding future interest rate changes.
## Market Expectation Shift: Fed’s Next Move
According to CME Group’s FedWatch Tool, as of August 7, more than 60% of traders are pricing in at least one 25-basis-point rate cut before the end of 2024. This marks a significant change from earlier in the year, when persistent inflation and robust job growth had prompted markets to push back rate cut expectations.
Key upcoming datasets that are likely to impact the path of monetary policy include:
– **US Consumer Price Index (CPI) for July**, scheduled to be released on August 13.
– **Non-farm payroll employment (NFP)** reports for August and September.
– **FOMC meeting minutes for July**, due on August 21.
If these data releases show continued moderation in inflation and subdued job growth, the likelihood of a rate cut will only increase.
## USD Weakness: Other Contributing Factors
Beyond policy speculation, the US dollar has faced pressure from other macroeconomic dynamics in recent weeks:
– **US bond yields have declined**, especially the 10-year Treasury, which has recently fallen back below 4.2%, reflecting increased demand for fixed
Read more on USD/CAD trading.