**USD/CAD Slides Toward 1.3730 as Fed Officials Signal Willingness to Cut Interest Rates in 2024**
*Originally reported by FXStreet | Contributed by Arslan Butt*
The USD/CAD currency pair experienced renewed selling pressure in early August 2024, as the greenback gave up ground against the Canadian dollar. Investors responded to increasingly dovish commentary from Federal Reserve officials, which amplified expectations for monetary easing later this year. The pair dropped to as low as the 1.3730 level in the early Asian session, extending losses that began in July.
This movement in USD/CAD takes place amid a backdrop of decelerating U.S. economic growth, falling inflationary trends, soft labor market data, and shifting central bank rhetoric. In contrast, the Canadian dollar (CAD) found modest support from a stable domestic macroeconomic environment and rising oil prices.
Below is a detailed breakdown of what’s driving USD/CAD’s current trajectory, the Federal Reserve and Bank of Canada’s positions, and what traders can expect in the coming months.
## Key Drivers of the USD/CAD Decline
### 1. Dovish Fed Commentary Supporting Rate Cuts
U.S. Federal Reserve officials have increasingly voiced openness to cutting interest rates in 2024, as signs of a cooling labor market and inflation losing steam suggest there may be room for monetary easing without jeopardizing price stability.
Recent Fed communications suggest the central bank is wary of overtightening. Notable statements include the following:
– **Minneapolis Fed President Neel Kashkari** acknowledged in early August that while inflation has declined considerably, the Fed still needs more evidence before initiating rate cuts. Even so, he left the door open for cuts should disinflation continue.
– **Chicago Fed President Austan Goolsbee** noted that wage pressures are easing and warned of the risk of unnecessarily restricting the economy.
– **San Francisco Fed President Mary Daly** emphasized that economic activity is gradually softening, which opens more space for rate adjustments later in the year.
These dovish signals have led markets to price in one to two rate cuts in the final quarters of 2024, compared with earlier forecasts of longer-term policy tightening. As a result, USD has weakened against most major currencies, including the CAD.
### 2. Weak U.S. Job and Economic Data
The most recent U.S. labor market reports have stoked concerns about the health of the economy. Below-trend job creation, flat wage growth, and downward revisions to past employment data point to a softening labor market:
– **Non-farm payrolls (NFP):** July’s jobs report showed the U.S. economy added only 113,000 jobs, missing expectations of 180,000 and sparking concerns about a slowing employment recovery.
– **Average hourly earnings:** Wage growth has moderated to 3.7% annually, down from 4.1% earlier in 2024, a sign of reduced inflationary wage pressures.
– **Job openings:** The Job Openings and Labor Turnover Survey (JOLTS) revealed that vacancies declined to 8.9 million in June, the lowest since early 2021.
In combination, these factors promote the view that the Fed could ease its stance, triggering weakness in the U.S. dollar.
### 3. Canada’s Economic Stability and Firming Oil Prices
The Canadian dollar is benefiting from relatively stable domestic economic data combined with support from rising crude oil prices. Since energy exports represent a significant share of Canada’s GDP, the CAD often moves in tandem with oil market trends.
Notable developments include:
– **Oil Prices:** West Texas Intermediate (WTI) crude, the primary U.S. benchmark, climbed above $84 per barrel in early August, supported by rising demand from Asia and tightening inventories. This helps bolster CAD strength as it leads to improved terms of trade for Canada.
– **Bank of Canada Monetary Policy:** The Bo
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