Ella 
USD/CAD broke a winning streak that began on July 17 and was trading around 1.3810 during the Asian session on Friday. The pair retreated from an eight-month high of 1.3849 recorded on Thursday. The pair fell as the U.S. dollar (USD) weakened ahead of the release of the U.S. personal consumption expenditures (PCE) price index for June.
However, the dollar’s downside may be limited as stronger U.S. economic data reduces some expectations for a rate cut in September. On Thursday, U.S. second-quarter gross domestic product (GDP) came in stronger than expected. Prior to this, U.S. Purchasing Managers Index (PMI) data released on Wednesday showed that private sector activity expanded at a faster pace in July, highlighting the resilience of the U.S. economy to maintain growth despite high interest rates.
After adjusting for seasonal factors and inflation, U.S. GDP increased by 2.8% annually, higher than the previous value of 1.4% and exceeding expectations of 2%. Additionally, the Composite Purchasing Managers’ Index rose to 55.0 from the previous reading of 54.8, marking its highest reading since April 2022, indicating continued growth over the past 18 months.
In the Canadian dollar, the Bank of Canada (BOC) continued to ease policy after its latest interest rate cut on Wednesday. The Bank of Canada cut interest rates for the second consecutive time by 25 basis points to 4.5 per cent at its meeting on Wednesday, citing progress in lowering inflation.
Bank of Canada members emphasized that oversupply and a cooling labor market were the reasons for their decision to cut interest rates, and their goal is to stabilize consumer prices at 2% by 2025. Financial markets are pricing in another 25 basis points of rate cuts this year, with odds of another cut at the Bank of Canada’s September meeting close to 60 per cent. This could limit upside for the Canadian dollar (CAD), supporting the USD/CAD pair.
