**USD/CAD Weakens Toward 1.3750 as Federal Reserve Rate Cut Expectations Intensify**
*Source: Adapted and expanded from the original article by FXStreet*
The USD/CAD currency pair is showing significant signs of weakening, approaching key support levels around 1.3750. This downward momentum is primarily driven by growing market speculation that the U.S. Federal Reserve is moving closer to initiating interest rate cuts. A softening in U.S. economic data, combined with dovish comments from Federal Reserve officials and increasing investor risk appetite, are contributing factors to the Canadian dollar’s recent strength against its U.S. counterpart.
Here is a broader look at the dynamics pushing USD/CAD lower, including additional context from other financial news sources and market analysis.
## Key Developments Behind USD/CAD Weakness
The following components are central to the current decline in the USD/CAD exchange rate:
### 1. Growing Expectations of Federal Reserve Rate Cuts
– Investors are increasingly pricing in the possibility that the Federal Reserve may shift toward easing monetary policy sooner than previously expected.
– U.S. economic indicators like slowing job growth and softer inflation numbers have added to the mounting case for rate cuts.
– Federal Reserve Chair Jerome Powell has recently acknowledged progress in controlling inflation, though he emphasized the Fed’s data-dependent stance.
– Several Fed officials, including Chicago’s Austan Goolsbee and Atlanta’s Raphael Bostic, have hinted that rate cuts could be appropriate later this year if inflation continues to trend downward.
According to the CME FedWatch Tool, market participants now assign a high probability to at least one rate cut occurring by September 2024. Expectations are shifting away from the earlier outlook of “higher for longer” toward an environment where interest rates start to normalize.
### 2. U.S. Economic Data Shows Signs of Deceleration
The U.S. macroeconomic backdrop is no longer as robust as it was in early 2024. The following reports have played a part in altering rate expectations:
– **U.S. Non-Farm Payrolls (NFP)** grew by 175,000 in the latest data, falling short of expectations and signaling a cooling labor market.
– **Average hourly earnings** growth slowed, indicating less wage-driven inflationary pressure.
– The **CPI (Consumer Price Index)** print for April showed that inflation remains sticky, yet appeared less threatening than in prior months.
– Slowing **retail sales** and weaker manufacturing numbers underscore a moderating economy.
These signals have prompted bond yields to decline, weakening the U.S. dollar and supporting high-beta currencies like the Canadian dollar.
### 3. Improvement in Risk Sentiment Supports Commodity Currencies
– Global equity markets have continued to gain recently, buoyed by optimism that the Fed can orchestrate a “soft landing” for the U.S. economy.
– With stocks rising and risk appetite improving, the U.S. dollar’s appeal as a safe-haven currency diminishes.
– Commodity-linked currencies such as the Canadian dollar tend to benefit in risk-on environments, and the loonie is no exception.
### 4. Canadian Dollar Gains Strength from Rising Oil Prices
As a major exporter of crude oil, the Canadian economy — and by extension the Canadian dollar — often benefits from elevated energy prices:
– Global oil prices have ticked higher as supply tightness and geopolitical risk return to the forefront.
– Wildfires in Canada and U.S. shale production bottlenecks have reduced supply outlooks.
– OPEC+ production disciplines are also contributing to sustained oil market support.
WTI crude recently rose above $78 per barrel, which is advantageous for Canadian trade balances and has helped drive CAD appreciation.
## USD/CAD Technical Analysis: Levels to Watch
The USD/CAD pair has been in a downward trajectory over the past few trading sessions, showing increasing bearish pressure as markets reassess Fed policy trajectories. Here are the key technical levels analysts are observing:
### Key Support Levels:
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