**USD/CAD Declines Toward 1.3750 as Fed Rate Cut Speculation Rises**
*Originally reported by FXStreet’s Akanksha Bakshi*
The USD/CAD currency pair has been on a downward trajectory, recently weakening toward the 1.3750 mark. This movement reflects growing speculation that the U.S. Federal Reserve (Fed) may begin cutting interest rates in the near future. As economic data from both the United States and Canada influence market sentiment, investors are adjusting their positions accordingly.
In this detailed overview, we will analyze the key factors driving the USD/CAD exchange rate lower, explore macroeconomic developments in both nations, and evaluate potential outcomes in the foreign exchange market.
## Overview of USD/CAD Performance
The USD/CAD currency pair recently dropped toward the 1.3750 level, a shift driven largely by softer U.S. inflation data and dovish sentiment surrounding the Federal Reserve’s future policy decisions. The U.S. Dollar Index (DXY) has also declined, reflecting waning demand for the greenback amid increased anticipation for a policy easing cycle.
### Latest Price Movements and Trends:
– USD/CAD was trading near 1.3750 following a significant decline from prior resistance levels closer to 1.3850.
– The pair has shown short-term bearish momentum, with technical indicators pointing to continued downside risk.
– The Canadian Dollar (CAD) gained relative strength due to rising crude oil prices and a more stable domestic economic outlook.
## Key Influences on USD/CAD
The weakening of the USD/CAD currency pair is influenced by several economic and geopolitical factors, primarily involving monetary policy outlooks from the Federal Reserve and the Bank of Canada (BoC), commodity price trends, and inflation data.
### 1. Expectations for Fed Rate Cuts
Markets are increasingly pricing in the likelihood of monetary policy easing from the Federal Reserve in the coming months.
#### Contributing Factors:
– The U.S. Consumer Price Index (CPI) for April showed a softer-than-expected increase in both headline and core inflation.
– Headline CPI: Rose 0.3% month-over-month, slightly below forecasted levels.
– Core CPI: Increased 0.3%, down from a previous 0.4% rise, signaling easing inflationary pressures.
– The annual core CPI dropped to 3.6%, its lowest since April 2021.
– Recent dovish commentary from Fed Chair Jerome Powell and other Federal Open Market Committee (FOMC) members has added to expectations for potential rate cuts as soon as September 2024.
– Money market futures, tracked by the CME FedWatch Tool, now estimate over a 65% chance of at least one 25-basis-point rate cut by September 2024.
### 2. Slowing U.S. Economic Data
Economic indicators are reinforcing the view that the U.S. is experiencing a slowdown in activity, which may increase the Fed’s willingness to cut rates.
#### Recent U.S. Macroeconomic Data:
– U.S. retail sales for April came in flat, below market expectations of a 0.4% rise.
– Industrial production showed marginal improvement but remained soft.
– The Weekly Initial Jobless Claims remain elevated, suggesting a weakening labor market.
These data trends imply that the U.S. economy may not require the current restrictive monetary stance for much longer.
### 3. Crude Oil Prices Support the Canadian Dollar
The Canadian economy is heavily tied to crude oil exports, as energy is a major component of its GDP. A recent uptick in oil prices has supported the Canadian Dollar (CAD), adding downside pressure on the USD/CAD pair.
#### Oil Market Dynamics:
– West Texas Intermediate (WTI) crude oil rose above $78 per barrel amid supply concerns and improving global demand indicators.
– Recent geopolitical tensions in the Middle East and continued commitments by OPEC+ to monitor output have provided a support base
Read more on USD/CAD trading.