USD/CAD remains on the sidelines near 1.3800 with focus on BoC policy meeting

• USD/CAD trades back and forth near 1.3800 ahead of BoC interest rate meeting.
• The BoC is expected to cut interest rates further by 25 basis points.
• Uncertainty over the US presidential election has weakened market sentiment.

The USD/CAD pair is trading in a narrow range near the round-level figure of 1.3800. The pair is consolidating as investors remain on the sidelines with the focus on the Bank of Canada (BoC) monetary policy meeting scheduled for 13:45 GMT.

The BoC is expected to deliver additional rate cuts due to easing inflationary pressures. The BoC’s core Consumer Price Index (CPI) accelerated to 1.9% in June, but remains below the bank’s 2% target. In addition, Canada’s labour market conditions have deteriorated due to higher interest rates. The central bank is expected to cut interest rates again by 25 basis points (bps) to 4.5%. Previously, the BoC pivoted towards policy normalization at the June meeting.

Meanwhile, outright weakness in the oil price has diminished the attractiveness of the Canadian Dollar (CAD). The oil price remains on a three-week downward trajectory due to weak demand outlook and easing supply concerns. It is worth noting that Canada is the leading exporter of oil to the United States (US) and lower oil prices weaken the Canadian Dollar.

Market sentiment remains risk-averse amid US political uncertainty. S&P 500 futures have posted significant losses in European trading hours. The Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is clinging to weekly gains near 104.50.

In today’s session, investors will focus on the preliminary US S&P Global Purchasing Managers’ Index (PMI) data for July, due out at 13:45 GMT. The report is expected to show that the manufacturing PMI expanded at a nominal pace to 51.7 from June’s reading of 51.6. The services PMI, a measure of activities in the service sector, is estimated to have expanded at a slower pace to 54.4 from the previous release of 55.3.

While the main trigger for the US dollar will be the Personal Consumption Expenditures (PCE) price index for June, which will be released on Friday. The inflation measure will provide clues as to when the Federal Reserve (Fed) will start cutting interest rates.