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USD/CAD steadies above 1.3600 as prospects for further BoC rate cuts improve

  • USD/CAD steadies above 1.3600 as investors await BoC to deliver consecutive rate cuts.
  • Fading strength in the US labor market has fueled bets on Fed rate cuts.
  • Investors are awaiting US CPI data for June.

The USD/CAD pair is holding above the crucial support of 1.3600 in the European session on Monday. The Loonie asset is trading in a narrow range within Friday’s range, while the outlook remains uncertain as the waning strength of the United States (US) labor market has boosted investors’ confidence in early rate cuts by the Federal Reserve (Fed).

S&P 500 futures have recouped losses seen in early European trading hours, showing a recovery in investors’ risk appetite. The Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is trading near a three-week low near 104.85. US 10-year Treasury yields are up after falling near a weekly low around 4.3%.

The US NFP report for June showed that the unemployment rate unexpectedly rose to 4.1%. Moreover, Average Hourly Earnings, a measure that assesses wage growth, slowed as expected on a monthly and annual basis. This has reduced the risks of inflation remaining persistent.

The next trigger for the US Dollar will be the US Consumer Price Index (CPI) data for June, due on Thursday. The US CPI report is expected to grow steadily on an annual basis by 3.4%. The scenario where core inflation grows steadily or at a higher pace would dampen market speculation about Fed rate cuts in September. On the contrary, a higher than expected inflation reading will strengthen the same.

As for the Canadian Dollar (CAD), market expectations for subsequent rate cuts by the Bank of Canada (BoC) have improved due to turmoil in the labor market. Canada’s unemployment rate rose at a faster pace to 6.4% from estimates of 6.3% and the previous release of 6.2%. Moreover, the labor market faced an unexpected tightening as 1.4K employees were laid off.

Economic indicator

Unemployment rate

The unemployment rate that is published Statistics Canada is the number of unemployed workers divided by the active population. A fall in this indicator has positive implications for consumer spending, which stimulates economic growth. A rise in the rate would indicate a weakening of economic activity. A result below expectations is bullish for the Canadian dollar, while a result above expectations is bearish.

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Fri Jul 05, 2024 12:30 PM






Statistics Canada

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Source: Fx Street

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