The USD/CAD pair continues to decline for the second consecutive day as the US Dollar (USD) faces selling pressure. The downward movement has dragged spot prices to over a one-month low around the 1.3665-1.3660 area. This bearish sentiment surrounding the USD is due to expectations that the Federal Reserve (Fed) will start cutting interest rates in September, as indicated by comments from San Francisco Fed President Mary Daly. This has overshadowed positive data regarding the US Consumer Sentiment Index, which improved in August.
In addition to the dovish Fed expectations, a positive tone in equity markets is also weighing on the USD and, subsequently, the USD/CAD pair. Technical selling following last week’s breakdown and rejection near the 50-day Simple Moving Average (SMA) support-turned-resistance level is also contributing to the downward pressure on the pair. However, a slight decline in Oil prices could potentially limit further losses by undermining the Canadian Dollar (CAD), which is linked to commodities like Crude Oil.
Traders will be closely watching the release of Canadian consumer inflation figures on Tuesday, followed by the FOMC meeting minutes on Wednesday. Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium will also be closely scrutinized for insights into the central bank’s policy direction. Geopolitical developments in the Middle East, which impact Crude Oil prices, will play a role in influencing the USD/CAD pair’s next directional move.
The Consumer Price Index (CPI), released by Statistics Canada on a monthly basis, is an important economic indicator that measures changes in prices for Canadian consumers. The year-over-year (YoY) reading compares prices in the reference month to the same month a year earlier. A high CPI reading is generally bullish for the Canadian Dollar (CAD), while a low reading is considered bearish. Traders can expect the next release on Tuesday, August 20, 2024.
Overall, the USD/CAD pair is facing downward pressure due to a combination of factors, including dovish Fed expectations, a positive risk tone in equity markets, and technical selling following last week’s breakdown. Traders will be closely monitoring upcoming economic data releases and central bank events for further insights into the direction of the pair. Geopolitical developments in the Middle East will also play a role in influencing Crude Oil prices, which will impact the commodity-linked Canadian Dollar.
