In Thursday’s Asian session, the USD/CAD currency pair fell to approximately 1.3460. The decline in the Loonie was driven by the US Dollar’s difficulty in maintaining its recovery from Wednesday. The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, retreated from 101.18 following a rebound from a recent annual low of 100.50.
Market attention is now squarely on the upcoming US core Personal Consumption Expenditure (PCE) price index for July, scheduled for release on Friday. The PCE report is anticipated to reveal a year-on-year core inflation rate of 2.7%, up from 2.6% in June, with a steady monthly increase of 0.2%. This data is expected to have a significant impact on market expectations regarding the Federal Reserve’s monetary policy decisions for September.
Currently, there is a prevailing expectation among financial market participants that the Fed will initiate interest rate cuts in September. However, there is uncertainty about the magnitude of the potential rate reduction, with traders divided between a gradual cut or a more substantial adjustment.
The CME FedWatch tool indicates that the probability of a 50-basis point cut is 34.5%, while the majority are predicting a reduction of 25 basis points.
On the Canadian side, investors are awaiting the release of both monthly and Q2 Gross Domestic Product (GDP) data on Friday. The GDP report is projected to show minimal expansion in June, following a 0.2% growth in May. On an annualized basis, Canada’s economic growth is expected to decelerate to 1.6%, down from the previous 1.7%. Slower economic growth could heighten expectations for additional interest rate cuts by the Bank of Canada (BoC).
