USD/CAD weakens while the Bill keeps the fees, US data disappoint

• The USD/CAD quotes below 1,3700 after the Canada Bank keeps rates without changes in 2.75%.
• The Canadian dollar is supported by the cautious posture of the BOC and a strong growth in the first quarter.
• The US dollar weakens while ADP employment data and ISM services PMI do not meet expectations

The Canadian dollar (CAD) extends its progress against the US dollar (USD) on Wednesday after the Bank of Canada (Boc) maintained the stable interest rates, aligning with market expectations. Meanwhile, the US dollar weakens in general after a strong mismatch in the change of employment of ADP and a weaker ISM services. The combination of stability in internal policy and disappointing data of the US is helping the USD/CAD be strengthened below the key psychological level of 1,3700, keeping the torque under bearish pressure.

At the time of writing, the USD/CAD is quoting down around 1,3668 during the American session, marking its lowest level since October 2024. This follows a modest gain on Tuesday, but the bullish impulse vanished as sellers re -entered into a general weak weakness of the USD.

The American dollar index (DXY) is going back from its maximum intradication of 99.39, cutting most of the earnings of the previous day, quoting around 98.70. The latest ADP report showed that employment in the US private sector increased by only 37,000 in May, well below the expected 115,000, pointing out a strong deceleration in hiring. Meanwhile, the ISM services PMI fell to 49.9 in May, failing in the 52.0 forecast and going down from April 51.6.

The Bank of Canada left its policy rate without changes in 2.75% on Wednesday, aligning with market expectations, citing persistent inflationary pressures and continuous uncertainty derived from US commercial policies “highly unpredictable.” Although the Central Bank chose to stand for now, Macklem warned that more rates cuts could be necessary if economic conditions deteriorate under the weight of the increasing tariffs.

In his monetary policy statement, the Boca stressed that the growth of the GDP of the first quarter exceeded expectations, promoted by an increase in exports and the accumulation of inventories before the imminent US tariffs. Inflation dynamics also influenced the decision of the BOC. While general inflation was moderated 1.7% in April, underlying inflation measures increased to 3.15%, the fastest pace in almost a year, driven by interruptions in the supply chain resulting from US tariff policy.

Looking ahead, the Bill maintains a cautious posture, noting that feat cuts could be considered if economic conditions are further weaken. The Central Bank is closely observing the impact of commercial tensions and the deceleration of demand in growth and inflation.