USD/CAD Is on the Defensive above 1.3600 Ahead of the BoC's Rate-Cut Announcement
On Tuesday, the USD/CAD traded slightly lower at 1.3620. In May, US manufacturing company activity fell for the second month in a row. On Wednesday, markets expect the Bank of Canada to drop its main lending rate by a quarter of a percentage point.

The USD/CAD pair remained on the defensive at 1.3620 in the early Asian session on Tuesday. The pair's decline is supported by a weaker US Dollar (USD), which fell to the 104.00 support level on Monday. Investors will turn their attention to the US Services PMI on Wednesday, ahead of the much-anticipated Nonfarm Payrolls.
The Institute for Supply Management (ISM) reported on Monday that business activity in the manufacturing sector fell for the second consecutive month in May. The US Manufacturing PMI fell to 48.7 in May from 49.2 the previous month, falling short of expectations of 49.6. The weaker-than-expected result put some selling pressure on the US dollar (USD) and fueled speculation about Fed rate cuts this year.
On Friday, the US Nonfarm Payrolls (NFP) will take center stage, with a projected 190,000 job increases in May. Stronger-than-expected statistics might strengthen the USD.
The Bank of Canada (BoC) is projected to lower its overnight rate by 25 basis points (bps) to 4.75% on Wednesday, after inflation in Canada slowed in April. Economists at CIBC Capital Markets believe the Bank of Canada might decrease interest rates up to three times before the Fed begins easing policy. The discrepancy in policy rates between the BoC and the Fed may drive the Canadian Dollar (CAD) down, creating a tailwind for USD/CAD. Tiff Macklem, the governor of the Bank of Canada, stated that a rate drop is feasible, but the decision will be based on economic statistics.
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