On Tuesday, the USD/CAD pair is trading with slight losses near the support level of 1.3620. The softening of the US Dollar has contributed to this downtick, with the currency touching the 104.00 support level on Monday. Investor focus will now shift to the US Services PMI data on Wednesday, followed by the highly anticipated Nonfarm Payrolls report. The Institute for Supply Management (ISM) reported that business activity in the US manufacturing sector contracted for the second consecutive month in May, with the Manufacturing PMI falling to 48.7 from 49.2. This weaker-than-expected data has put some downward pressure on the USD and raised speculation about potential Fed rate cuts.
On Wednesday, all eyes will be on the US Services PMI report, with the Nonfarm Payrolls (NFP) release scheduled for Friday. The NFP is expected to show an addition of 190,000 jobs in May, and a stronger-than-expected reading could boost the USD. In contrast, the Bank of Canada (BoC) is expected to cut its overnight rate by 0.25% to 0.75% on Wednesday due to cooling inflation in Canada. CIBC Capital Markets economists believe that the BoC may lower its interest rate up to three times before the Fed starts easing policy. This policy rate divergence between the BoC and the Fed could lead to a decline in the Canadian Dollar (CAD) and provide a tailwind for the USD/CAD pair.
In terms of future rate cuts, BoC Governor Tiff Macklem has stated that a rate cut is a possibility, although it would depend on economic data. The prospect of further rate cuts by the BoC could add to the downside pressure on the CAD. Additionally, the imminent rate decision by the BoC could play a significant role in determining the direction of the USD/CAD pair after the announcement. With markets pricing in a rate cut by the BoC, the USD is likely to gain further strength against the CAD in the near term. Traders will closely monitor economic data releases and central bank decisions to gauge the future movements of the USD/CAD pair.
