The USD/CAD pair is currently finding support near 1.3650 amidst speculations that the Bank of Canada (BoC) might announce a rate cut on June 5. However, the US Dollar is expected to bounce back as expectations for the Federal Reserve (Fed) shifting to rate cuts in September have decreased significantly. In Monday’s trading session, trading volume is anticipated to be light due to the holiday observed in US markets for Memorial Day.
The Loonie asset is struggling for direction as it trades in a tight range above the crucial support level of 1.3650. The US Dollar is stable in the Asian session, influenced by the holiday mood in the US economy. Friday saw a sharp sell-off in the Loonie asset due to the weakening US Dollar, as indicated by the decline in the US Dollar Index (DXY) to 104.70. Despite expectations of the Fed keeping interest rates steady, traders are now seeing a little over 50% chance of a stable interest rate decision in the September meeting, up from 38% last week.
The likelihood of a rate cut by the BoC in its upcoming monetary policy on June 5 has increased due to weak domestic spending. This was evidenced by the decrease in monthly Retail Sales for March as reported by Statistics Canada on Friday, showing a 0.2% decline. This contraction in Retail Sales for the third consecutive month highlights the challenges faced by households in coping with higher interest rates set by the BoC. The need for the BoC to return to policy normalization is underscored by weak household spending and easing price pressures.
Investors are closely monitoring the developments in both the US and Canadian economies, as well as the decisions by the respective central banks. The fluctuating expectations regarding interest rates are impacting the currency markets and leading to volatility in the USD/CAD pair. Traders will be keeping a close eye on economic data releases and central bank statements for any clues regarding future monetary policy actions.
Overall, the near-term outlook for the USD/CAD pair remains uncertain as market participants weigh the potential actions of both the Fed and the BoC. The holiday mood in US markets is expected to keep trading volume light, adding to the indecisiveness in the currency pair. As economic indicators continue to fluctuate, investors will need to closely monitor geopolitical developments and central bank policies to gauge the direction of the USD/CAD pair in the coming days.
