The USD/CAD pair is trading lower around 1.3545 in the early Asian session on Wednesday, weighed down by a weaker-than-expected US ISM Purchasing Managers Index (PMI) and market anticipation of the Bank of Canada’s (BoC) upcoming interest rate decision.
US manufacturing activity continued to contract in August, although at a softer pace. The US ISM Manufacturing PMI increased to 47.2 from July’s eight-month low of 46.8, but fell short of the market consensus of 47.5. This marks the lowest reading since November.
Ahead of Friday’s US August Nonfarm Payrolls report, which is expected to provide insights into the Federal Reserve’s potential rate cut strategy, the US Dollar (USD) may find some support, potentially limiting the pair’s downside. Financial markets currently estimate a 62% probability of a 25 basis points rate cut by the Fed in September, with a 38% chance of a 50 basis points reduction, according to the CME FedWatch tool.
On the Canadian side, the BoC is anticipated to announce a third consecutive interest rate cut later on Wednesday. The expected reduction of 25 basis points would lower the benchmark interest rate to 4.25%, with further cuts projected throughout the remainder of the year and into 2025. “The Bank of Canada is likely to view recent GDP data as supportive of its easing stance, with three additional quarter-point cuts anticipated by year-end,” stated Maria Solovieva of TD.
The Canadian Dollar (CAD) continues to be pressured by falling crude oil prices, which negatively impact the commodity-linked currency. As Canada’s largest oil exporter to the United States, lower oil prices tend to undermine the value of the CAD.
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