Ella 
In early Asian trading on Tuesday, USD/CAD rose to below the mid-1.3500 level. USD/CAD was boosted by a stronger U.S. dollar and rising U.S. Treasury yields. USD/CAD is currently trading around 1.3540, with an intraday increase of 0.03%. Canada’s Ivey Purchasing Managers’ Index (PMI) for January is due out later on Tuesday and is expected to fall to 55.0 from 56.3 in December.
Federal Reserve Chairman Powell said late Sunday that the Fed will still cut interest rates three times this year, and is expected to start cutting interest rates as early as May. The odds of a rate cut in March have dropped to 15%, the CME FedWatch tool showed, down from 38% a day earlier. The prospect of longer-term U.S. interest rate hikes could boost USD/CAD and act as a “tailwind” to USD/CAD.
Investors expect the Bank of Canada to initiate a policy path to lower its benchmark interest rate from a 22-year high of 5% in April, a Bank of Canada survey showed on Monday. By the end of 2024, the market expects the median policy rate forecast to fall to 4%, which is consistent with the forecast in the Bank of Canada’s last survey released in November.
At the same time, as Canada is the largest oil exporter to the United States, falling oil prices may put some selling pressure on the commodity-linked Canadian dollar.
Market participants will be keeping a close eye on Canada’s December building permit and Ivey PMI data due later on Tuesday. On Friday, attention will turn to Canadian labor market data, including the unemployment rate.
