The USD/CAD pair continued its upward trajectory for the second consecutive day, trading at approximately 1.3520 during early European hours on Tuesday. This rise is attributed to a stronger US Dollar (USD) and diminishing expectations of a substantial rate cut by the US Federal Reserve in September.
US Treasury yields have been climbing, bolstering the US Dollar, though the extent of its gains may be constrained by prevailing expectations of a modest 25 basis point rate cut by the Federal Reserve. The CME FedWatch Tool indicates that the market anticipates a nearly 70% chance of a 25 basis point reduction at the Fed‘s September meeting.
In contrast, the Canadian Dollar (CAD) has faced pressure from declining commodity prices, although this decline may be moderated by rising crude oil prices. West Texas Intermediate (WTI) crude has surged to nearly $73.60 per barrel, driven by concerns over potential supply disruptions in Libya. Reports from Reuters indicate that oil exports from major Libyan ports were halted on Monday, with production reductions nationwide.
Attention now turns to the Bank of Canada’s (BoC) interest rate decision, scheduled for Wednesday. The market widely expects the BoC to implement its third consecutive rate cut in September, with a projected reduction of 25 basis points to 4.25%. Further cuts are anticipated through the rest of the year and into 2025.
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