USD/CAD Consolidates Below 1.3550 As Canadian PMI Data Is Anticipated
Tuesday, USD/CAD trades in positive territory for the third consecutive day near 1.3540. The US central bank, according to Fed Chair Powell, is on pace to reduce interest rates three times this year. March is anticipated as the month in which the Bank of Canada (BoC) begins reducing its interest rate from a 22-year peak of 5%.
On Tuesday morning, the USD/CAD pair gains ground below the mid-1.3500s during Asian trading hours. An upward trend in US Treasury bond yields and a strengthening US Dollar (USD) offer some assistance to the pair. At present, USD/CAD is trading near 1.3540, a daily increase of 0.03%. The January Canadian Ivey Purchasing Managers Index (PMI), which is anticipated to decline from 56.3 in December to 55.0 in January, is released later on Monday.
Jerome Powell, chairman of the Federal Reserve (Fed), stated on Sunday evening that the United States central bank remains on schedule to reduce interest rates by three times this year, beginning as early as May. The probability of a rate reduction in March has decreased from 38% a day ago to 15%, as indicated by the CME FedWatch instrument. The US higher-for-a longer-period of interest rate narrative could strengthen the US dollar and provide a tailwind for the USD/CAD pair.
On April, investors expect the Bank of Canada (BoC) to commence reducing its benchmark interest rate from its all-time high of 5%, according to a survey the central bank published on Monday. The markets anticipate the median forecast for the policy rate to decline to 4% by the conclusion of 2024. This projection aligns with the outcomes of a prior survey that was published in November.
Canada, being the leading exporter of crude to the United States, could experience some selling pressure on the commodity-linked Loonie in response to the decline in oil prices.
As of later on Tuesday, market participants will closely monitor the Canadian Building Permits for December and the Ivey PMI data. The focus will transition to labor market data in Canada, which will include the Unemployment Rate, on Friday.
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