Ella 
USD/CAD attracted some dips after retreating to around 1.3700 in Asian session, but follow-through buying was lacking and it remained below the near three-week low hit on Friday. Spot prices are currently trading around 1.3725-1.3730, flat on the day.
The initial market reaction to U.S. President Joe Biden’s withdrawal from the presidential race was short-lived, as evidenced by the mild rebound in the U.S. dollar. This became a key factor in favor of USD/CAD. However, dovish bets by the Federal Reserve prevented traders from making aggressive long dollar bets and limited the upside of the currency pair.
Investors currently seem to believe that the U.S. central bank will reduce borrowing costs in September and have priced in two more rate cuts before the end of the year, which is expected to boost economic activity and fuel demand. This helped crude oil prices reverse some of the sharp declines that hit a one-month low on Friday, boosting the commodity-denominated Canadian dollar and limiting the pair’s gains.
Meanwhile, concerns about a slowdown in China, the world’s largest oil importer, will act as a headwind for crude oil prices. Traders appear to prefer to wait for more clues about the Fed’s policy path before betting on the direction of USD/CAD. Therefore, the market focus will remain on the US Personal Consumption Expenditures (PCE) price index data released on Friday.
This week, market participants will also focus on the release of the US preliminary Purchasing Managers Index (PMI) data, which will provide new perspectives on the health of the global economy and have an impact on crude oil prices. Meanwhile, in the absence of any relevant macro data from the US or Canada to influence the market, broader risk sentiment is likely to continue to drive the US dollar and generate USD/CAD trading opportunities.
