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USD/CAD regained some ground near 1.3460, snapping a three-day losing streak in early European trade on Wednesday. A modest recovery in the US dollar (USD) supported the pair’s gains. Market participants will get more clues from speeches by Federal Reserve (Fed) Christopher Waller and Raphael Bostic later on Wednesday.
Caution ahead of artificial intelligence giant Nvidia’s earnings report and a Fed speech could boost safe-haven flows, benefiting the dollar. However, firmer expectations that the U.S. Federal Reserve will cut borrowing costs in September could limit the dollar’s upside. Markets have fully priced in the possibility of a 25 basis point (bps) rate cut in September, while the probability of a larger rate cut is 34.5%, according to data from the CME FedWatch Tool. Traders believe the Fed will ease policy by 100 basis points this year.
San Francisco Fed President Mary Daly said on Monday she believed it was appropriate for the central bank to begin cutting interest rates. Her comments echoed Fed Chairman Jerome Powell’s speech at the Jackson Hole symposium, where he said he was confident that inflation was heading toward his 2% target and “now is the time to adjust policy.” .
In the Canadian dollar, economists expect the Bank of Canada (BOC) to cut interest rates for a third consecutive time at its policy meeting on September 4, according to the median forecast in a Bloomberg August poll. This in turn could weigh on the CAD/USD exchange rate. At the same time, as Canada is a major oil exporter to the United States, falling crude oil prices will also cause the commodity-linked Canadian dollar to fall.
