On Wednesday, during the early European session, the USD/CAD pair recovered to approximately 1.3715. However, the potential for further gains may be constrained due to ongoing support for the Canadian Dollar (Loonie) from rising crude oil prices. Later in the day, attention will shift to the US Consumer Price Index (CPI) for July, which is anticipated to impact market dynamics.
The US Dollar remains under pressure as expectations grow for additional interest rate cuts by the Federal Reserve following weaker-than-expected Producer Price Index (PPI) data. The Bureau of Labor Statistics reported a July PPI for final demand at 2.2% year-over-year, down from 2.7% in June.
Simultaneously, the Loonie benefits from higher oil prices, driven by a significant drop in US oil inventories. As Canada is a major oil exporter to the US, rising oil prices typically strengthen the CAD.
The Bank of Canada (BoC) reduced its overnight rate target by 25 basis points to 4.5% on July 24, continuing the dovish trend initiated with its June cut. Analysts predict the BoC will implement further rate cuts in each of its remaining three policy meetings for 2024, beginning in September, which could limit the downside potential for the USD/CAD pair.
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