**USD/CAD Posts Modest Losses Below 1.3750 Amid Diminishing Odds of BoC Rate Cut**
*By FXStreet Staff (original), rewritten and expanded by [Your Name]*
The USD/CAD currency pair continued its mild downward trajectory during Monday’s North American session, trading just below the 1.3750 level. The lack of strong directional movement is owed in part to moderating expectations of an imminent interest rate cut by the Bank of Canada (BoC), while a generally cautious market sentiment has added further complexity to the currency pair’s near-term outlook.
This article examines the underlying drivers of the recent USD/CAD price movements, focusing on Canadian economic fundamentals, BoC’s policy trajectory, recent developments in the US economy, and broader financial market dynamics.
## Key Highlights:
– USD/CAD edged lower to trade below 1.3750 on tepid US Dollar demand and stable Canadian economic indicators.
– Markets are scaling back expectations of another Bank of Canada interest rate cut in July.
– Stronger-than-anticipated Canadian employment data reinforces the case for the BoC to proceed cautiously.
– Investors are awaiting fresh economic data from both Canada and the US this week to gauge the next directional move.
– The broader macroeconomic landscape remains uncertain, supporting short-term consolidation in the pair.
## BoC Policy Expectations: Traders Pull Back Bets on July Rate Cut
At the center of USD/CAD’s recent soft decline is shifting sentiment around monetary policy. Initially, the Bank of Canada was expected to follow a dovish path throughout the second half of 2024. However, surprisingly robust labor market data out of Canada has led to a rethinking of this forecast.
### Canadian Employment Report – July 2024:
According to Statistics Canada:
– The Canadian economy added approximately 45,000 jobs in June, beating analysts’ expectations for 25,000.
– The unemployment rate held steady at 6.2 percent, signaling underlying labor market resilience.
– Wage growth remained firm with average hourly earnings increasing by 4.1 percent year-on-year.
This stronger data has reduced the probability of another BoC rate cut at its July 24 policy meeting. According to money markets tracked by Refinitiv:
– Market-implied odds of a rate cut in July now stand at around 40 percent, down from 70 percent just a few weeks ago.
Governor Tiff Macklem and his colleagues at the central bank have made it clear that future policy decisions will be heavily data-dependent. Unless inflation or economic activity weakens signficantly over coming weeks, the BoC seems unlikely to ease quickly again.
## Inflation Trends in Canada
While inflation has cooled substantially from its post-pandemic peaks, the central bank remains cautious about declaring victory prematurely.
According to the latest Consumer Price Index (CPI) figures:
– Headline inflation rose 2.9 percent year-on-year in May, slightly above the BoC’s target midpoint of 2 percent.
– Core inflation measures, considered by the BoC for policy decisions, have also remained somewhat sticky.
This means that although inflation is trending in the right direction, the BoC is likely to adopt a measured and cautious approach before executing further rate reductions.
## Performance of the US Dollar: Modest Weakness Keeps Pressure on USD/CAD
From the US side of the equation, the Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, remains on the defensive. A confluence of softer US data and rising speculation that the Federal Reserve might ease policy later this year has dented demand for the Dollar.
### US Economic Data Snapshot:
– The June Nonfarm Payrolls report showed job creation of 206,000, slightly above market expectations. However, previous months’ figures were revised downwards.
– The US unemployment rate ticked up to 4.1 percent, surprising market participants who had projected a steady 4.0 percent.
– Average
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