**USD/CAD Under Pressure as Fed Cut Speculation Builds Ahead of Crucial Economic Data Releases**
*Adapted and expanded from an article on FXDailyReport, authored by Jasmine Sowell*
The US dollar to Canadian dollar (USD/CAD) currency pair continues to trade under pressure as market sentiment pivots towards growing expectations of a potential Federal Reserve interest rate cut. With key economic data from both the United States and Canada anticipated, traders are closely monitoring indicators that could influence central bank decisions across North America.
This article provides an in-depth look at the USD/CAD pair’s price action, factors influencing volatile currency movement, technical levels to watch, and what lies ahead for traders.
## Market Context: Shifting Sentiment on US Monetary Policy
Investor sentiment is undergoing a noticeable shift as expectations mount that the US Federal Reserve may initiate rate cuts in the coming months. After over a year of aggressive monetary tightening meant to temper inflation, emerging cracks in US economic indicators and softer inflation readings have ignited bets that the Fed could change course.
At the core of this sentiment is the cooling trajectory of the US economy, more evident in reduced job growth, weaker consumer spending, and recent core inflation data that suggests price pressures may be stabilizing. Notably:
– The April 2024 US CPI grew 3.4% year-over-year, a slight decrease from 3.5% in March.
– Core CPI, which excludes food and energy, decelerated to 3.6% in April from 3.8% in March.
– The most recent Non-Farm Payrolls report for May showed job creation slowed to 175,000, missing projections and reinforcing the case for policy easing.
These signs of moderate economic softening are boosting speculations that the Fed may consider one or more rate cuts before the end of 2024. The CME FedWatch Tool now places over a 65% probability of at least one cut occurring by September 2024.
## Currency Impact: The USD Loses Momentum
As rate cut bets intensify, the US dollar has lost some of its prior momentum. Lower yields make the dollar comparatively less attractive to investors, especially in an environment where other central banks are maintaining or delaying their own rate adjustments.
In this context, the USD/CAD pair is trading subdued, with the Canadian dollar (CAD) benefiting modestly in relative strength, partly due to firm energy prices and Canada’s still-hawkish central bank compared to its US counterpart.
As of writing:
– USD/CAD remains flat near 1.3683 after reaching weekly highs around 1.3730.
– Over the past month, the pair has been oscillating within a range of 1.36 to 1.375.
## Canadian Dollar Fundamentals: Steadying Support from Oil and Tight Policy
The Canadian dollar has been bolstered by several domestic catalysts, despite challenges looming around global demand.
### 1. Energy Prices Providing Tailwind
– Crude oil prices have remained stable above $75 per barrel (WTI), supported by expectations of summer demand, OPEC+ production discipline, and geopolitical tensions.
– As Canada is one of the largest oil exporters globally, higher oil prices buoy the CAD by increasing the country’s export revenue.
### 2. Bank of Canada’s Cautious Outlook
– The Bank of Canada (BoC), led by Governor Tiff Macklem, has maintained the benchmark overnight rate at 5.00% since mid-2023.
– While acknowledging disinflation progress, the BoC continues to strike a prudent tone, emphasizing that it needs “more evidence” inflation will return sustainably to the 2% target.
– This cautious approach contrasts somewhat with rising dovish signals from the Fed, underpinning CAD’s relative strength.
## Key Economic Events to Watch
As traders look to position themselves ahead of possible policy shifts, the upcoming data from both the US and Canada is crucial.
### United
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