The USD/CAD pair has found support near the level of 1.3600 as the US Dollar sees a slight recovery, bouncing back from a recent low against major currencies. This recovery is driven by decreased expectations of a rate cut by the Federal Reserve in the upcoming meeting. As a result, the S&P 500 has turned negative and US Treasury yields have increased to 4.48%. This shift in sentiment is favorable for US bond yields.
Traders have been scaling back their bets on a Fed rate cut due to uncertainties surrounding inflation trends. While April’s CPI report showed a slowdown in inflation, Fed officials believe this is not a long-term trend. They are looking for a sustained decline in inflation over several months before considering lowering interest rates. This week, investors will closely monitor the core PCE Price Index data for April to gauge inflation growth.
On the other hand, the Canadian Dollar may face pressure as expectations grow for the Bank of Canada (BoC) to start lowering interest rates starting from the June meeting. With the core CPI data in Canada declining to 1.6% annually and Retail Sales showing contraction for the past three months, market participants believe the BoC may need to adjust its monetary policy stance soon. As a result, the Loonie could weaken against the US Dollar in the coming weeks.
Overall, the USD/CAD pair remains volatile as traders monitor both US and Canadian economic indicators for clues on future monetary policy decisions. With the Fed leaning towards maintaining interest rates and the BoC potentially considering rate cuts, the currency pair is likely to see more fluctuations in the near term. Traders should be prepared for potential shifts in market sentiment and adjust their trading strategies accordingly to capitalize on potential opportunities in the forex market.
