**USD/CAD Drops Toward 1.3730 as Fed Officials Signal Rate Cuts in 2024**
*By Anil Panchal | Source: FXStreet*
The US dollar has continued to weaken against the Canadian dollar, with the USD/CAD currency pair slipping toward the 1.3730 level. This move stems largely from mounting indications that the Federal Reserve may be preparing to lower interest rates later in 2024. Various signals from Federal Reserve officials now point to a potential shift in monetary policy, fostering a recalibration in forex markets.
At the same time, the Canadian dollar is gaining momentum, supported by stabilizing oil prices and increased confidence in Canada’s economic recovery. This article explores the latest developments influencing USD/CAD trends, including dovish Fed remarks, economic data releases, and broader market sentiment.
## Highlights
– USD/CAD extends its decline, trading near 1.3730
– Federal Reserve officials signal openness to rate cuts in 2024
– Weak U.S. Nonfarm Payrolls bolster rate-cut expectations
– Canadian dollar benefits from stable oil prices and central bank consistency
– Traders await key inflation data and upcoming Fed communications for further direction
## Fed Officials Hint at Rate Cuts
On Tuesday, several members of the US Federal Reserve offered insights that suggested the central bank may be nearing a pivot in its monetary policy stance. Specifically, Chicago Fed President Austan Goolsbee and Cleveland Fed President Loretta Mester made remarks that leaned toward eventual interest rate reductions.
### Goolsbee and Mester Remarks
– **Austan Goolsbee (Chicago Fed)**:
– Emphasized progress in the disinflationary process
– Expressed caution about keeping rates too high for too long
– Suggested the Fed must “balance the risks” and hinted rates could come down if inflation continues to cool
– **Loretta Mester (Cleveland Fed)**:
– Echoed similar themes around inflation progress
– Until recently, Mester has been among the more hawkish voices within the Fed
– Her tone marked a subtle shift, aligning with dovish expectations
These comments follow a weaker-than-expected U.S. Nonfarm Payrolls report released last Friday, which increased recession fears and gave the Fed more leeway to cut rates. The June jobs data confirmed that job creation is slowing, a development consistent with a potential shift in the Fed’s tightening trajectory.
## Market Reacts to Softer U.S. Labor Data
The U.S. Nonfarm Payrolls report on August 2nd showed only 187,000 jobs added in July, below the expected 200,000. Wage growth also cooled, with average hourly earnings up 0.3% month-over-month, down from 0.4% the previous month.
### Key U.S. Employment Indicators
– **Nonfarm Payrolls**: 187,000 (vs. forecast of 200,000)
– **Unemployment Rate**: Slight decrease to 3.5%
– **Average Hourly Earnings**: Up 0.3% (YoY at 4.4%)
These tepid employment figures support a scenario in which the Fed may prioritize economic stability over its inflation fight. Investors now expect the Fed to deliver one or more 25-basis-point rate cuts before year-end.
According to the CME FedWatch Tool:
– Market-implied probabilities show an 85% chance of a 25 bps cut by December
– Roughly 50% probability is priced in for a rate cut as early as September
## US Dollar Index Weakens
Following both dovish Fed remarks and soft data, the US Dollar Index (DXY) fell sharply. The greenback has lost momentum amid expectations that yields on U.S. Treasuries will begin to decline, eroding the currency’s previously strong appeal.
### USD Index Performance
– DXY fell below 102.00,
Read more on USD/CAD trading.