The USD/CAD pair is hovering around 1.3430 during the early European session on Wednesday, facing downward pressure following the Federal Reserve’s recent 50-basis point interest rate cut.
Expectations of further rate cuts by the Fed in 2024 may lead to additional depreciation of the US Dollar (USD). According to the CME FedWatch Tool, the market is pricing in approximately a 50% chance of a 75-basis point reduction, which would lower the Fed’s rate to a range of 4.0-4.25% by year-end.
Contributing to the downward pressure on the USD are lower US Treasury yields. The US Dollar Index (DXY), which tracks the dollar’s value against six major currencies, is trading around 100.30, with 2-year and 10-year Treasury yields at 3.51% and 3.73%, respectively.
Federal Reserve Governor Michelle Bowman emphasized on Tuesday that key inflation indicators remain “uncomfortably above” the 2% target, calling for caution as the Fed considers further interest rate cuts. However, she expressed a preference for a more measured approach, advocating for a standard quarter percentage point reduction.
On the other hand, the Canadian Dollar (CAD), which is sensitive to commodity prices, may weaken as crude oil prices face challenges. Investors are reassessing the effectiveness of China’s stimulus measures to bolster its economy and drive fuel demand growth, with West Texas Intermediate (WTI) crude oil priced at approximately $71.00 per barrel at the time of writing.
Bank of Canada (BoC) Governor Tiff Macklem stated on Tuesday that the central bank will closely monitor consumer conditions in Canada. He stressed that the timing and pace of future rate cuts will depend on incoming data, stating, “The timing and pace will be determined by incoming data and our assessment of what those data mean for future inflation.”
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