**USD/CAD Weakens Near 1.3750 as Rate Cut Expectations Pressure US Dollar**
*Author: Based on original reporting by FXStreet analyst Satoshi Inomata*
The USD/CAD currency pair has come under renewed selling pressure, dropping to levels near 1.3750 in recent sessions. This weakness stems primarily from mounting expectations that the U.S. Federal Reserve will pursue interest rate cuts in the coming months. Increased risk appetite in global markets is also favoring commodity-linked currencies such as the Canadian dollar.
As the economic outlook in both the United States and Canada evolves, traders and investors continue to reassess their outlooks for interest rates, inflation, labor markets, and energy prices. These variables are significantly influencing the path of the USD/CAD pair as we transition through the third quarter of 2024.
## Key Drivers Behind USD/CAD Weakness
### 1. Expectations for Federal Reserve Rate Cuts
– **US inflation appears to be stabilizing**, and some key data points, including recent CPI and PPI reports, suggest that consumer and producer prices are no longer rising at an aggressive pace.
– **The Federal Reserve has retained a cautious tone**, but recent comments by Fed Chair Jerome Powell and other members of the FOMC (Federal Open Market Committee) hint that rate cuts could begin as early as September 2024 if inflation remains controlled and economic growth decelerates.
– According to the CME FedWatch Tool, markets now see more than a **65% probability of a Fed rate cut by September 2024**, up from under 40% just a few weeks ago.
– Lower interest rates in the US would **reduce the yield advantage** currently enjoyed by the USD, making it less attractive to investors and weakening its position against currencies like the Canadian dollar.
### 2. Canadian Dollar Benefits from Rising Oil Prices
– The Canadian dollar is often influenced by global **crude oil prices** due to Canada’s status as a major oil exporter.
– WTI crude futures rose to approximately **$82 per barrel** recently, marking a recovery supported by forecasts of tighter global supply in the second half of 2024.
– **OPEC+ production cuts**, reduced oil inventories in the US, and geopolitical tensions in the Middle East are all contributing to upward pressure on crude prices.
– Demand from Asia, especially China, is also expected to increase in the late summer and fall, which may further bolster oil prices and provide continued support to CAD.
### 3. Divergence in Economic Data Between US and Canada
– The latest **US payroll report** showed a tightening in labor market growth, with a slowdown in job creation and average hourly earnings softening slightly.
– In contrast, Canada’s job market exhibited **resilience in recent reports**, with unemployment holding steady and labor force participation recovering.
– While the **US ISM Manufacturing Index** for July showed contraction, the Canadian manufacturing PMIs remained steady, reflecting more robust activity.
– These indicators have led traders to reassess the strength of the US economy relative to Canada, contributing to bearish positioning on USD/CAD.
## Technical Analysis Outlook
Technically, the USD/CAD pair shows signs of bearish momentum in the short term. Here’s a breakdown of the recent price action:
– Following a **failure to break strong resistance at 1.3860**, the pair has gradually declined toward the 1.3750 level, which now acts as minor support.
– A break below 1.3750 would likely open the path toward the **next support zone at 1.3660 – 1.3680**.
– Momentum indicators (RSI and MACD on the 4-hour and daily charts) are trending lower but not yet in oversold territory, signaling further downside may be probable.
– Moving averages are slowly rolling over, with the **20-day EMA crossing below the 50-day SMA**, which serves as a minor bearish confirmation.
## Broader
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