The USD/CAD currency pair is trading stronger near 1.3740 during the Asian session on Tuesday. Traders are taking a cautious stance, awaiting significant economic data and speeches that could influence market direction.
The US Producer Price Index (PPI) will be a focal point later today, with expectations of a slight easing to 2.3% year-over-year (YoY) in July from 2.6% previously. Core PPI is anticipated to drop to 2.7% YoY from 3.0% in the prior reading. These figures are crucial as they may provide insights into future US monetary policy.
Adding to market anticipation is a speech by Federal Reserve Governor Raphael W. Bostic. Analysts are particularly interested in his comments regarding the potential for a rate cut. BBH Global Currency Strategy analysts suggest that a 50 basis points (bps) rate cut by the Fed remains a possibility, though it hinges heavily on upcoming data. Currently, there is approximately a 55% chance priced in for such a rate cut, which might influence USD’s movement against other currencies.
Fed Governor Michelle Bowman commented over the weekend, noting that while recent progress in reducing inflation is encouraging, inflation remains above the Fed’s 2% target. She emphasized a cautious approach to policy adjustments.
On the Canadian side, the Bank of Canada (BoC) is anticipated to implement two more rate cuts of 25 bps each in September and October. This expectation could limit the Canadian Dollar’s (CAD) upside potential. However, rising crude oil prices, driven by geopolitical tensions in the Middle East and expectations of the Fed’s easing cycle starting in September, might support the CAD. Generally, higher oil prices tend to bolster the CAD, given Canada’s role as a major oil exporter to the US.
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