USDCAD is moving in Descending channel and market has reached lower high area of the channel
USD/CAD Edges Lower: Key Factors Influencing the Pair
The USD/CAD pair has been experiencing a slight dip, trading around 1.3675 during Monday’s Asian session. Several factors contribute to this movement, including softer US inflation data and higher crude oil prices. Let’s delve into the details to understand what’s driving the USD/CAD pair.
The Impact of Softer US Inflation on USD/CAD
The recent data from the Commerce Department revealed a slowdown in the US core Personal Consumption Expenditures (PCE) inflation. This measure, preferred by the Federal Reserve, showed a rise of 2.6% year over year in May, down from 2.8% in April. Similarly, the headline PCE inflation also saw a slight dip to 2.6% from 2.7%. These figures indicate easing inflation pressures, which have significant implications for the US Dollar (USD).
Fed Rate Cut Hopes Rise
The softer inflation data has boosted hopes for a potential rate cut by the Federal Reserve. When inflation slows down, it often leads to expectations that the central bank might lower interest rates to stimulate economic activity. San Francisco Federal Reserve Bank President Mary Daly highlighted this by noting the signs of monetary policy working, with slowing growth, spending, and labor market activities, along with decreasing inflation.
Higher Crude Oil Prices and the Canadian Dollar
While the US Dollar faces downward pressure, the Canadian Dollar (CAD) is finding support from rising crude oil prices. As a major crude oil exporter, Canada benefits from higher oil prices, which, in turn, bolster the value of the CAD. This dynamic plays a crucial role in the USD/CAD exchange rate, as higher oil prices tend to strengthen the Canadian currency.
USDCAD is moving in box pattern and market has fallen from the resistance area of the pattern
Investors Eye US ISM Manufacturing PMI
Investors are keenly watching for more economic indicators that could influence the USD/CAD pair. One such indicator is the US ISM Manufacturing PMI for June, which is due for release on Monday. This data provides insights into the health of the manufacturing sector, which can impact market sentiment and currency movements. A strong PMI reading could counterbalance some of the negative effects of softer inflation data on the USD, while a weak reading might further weigh on the currency.
USDCAD is moving in Ascending channel and market has reached higher low area of the channel
Canadian Inflation and the Bank of Canada’s Next Move
On the Canadian side, inflation remains a critical factor. In May, inflation in Canada stayed elevated, raising questions about the Bank of Canada’s (BoC) future interest rate decisions. According to Deloitte’s Economic Outlook for Summer 2024, the BoC is expected to hold off on a second rate cut until September, with another move anticipated in December. These rate cuts are predicted to continue throughout 2025, with the overnight rate settling at a neutral level of 2.75% by the end of next year.
Final Thoughts
The USD/CAD pair is currently influenced by a mix of factors, including softer US inflation data, rate cut expectations, and higher crude oil prices. Investors will continue to monitor upcoming economic indicators like the US ISM Manufacturing PMI and the Bank of Canada’s policy moves. Understanding these dynamics can help traders and investors navigate the fluctuations in the USD/CAD exchange rate.
In the ever-evolving forex market, staying informed and adaptable is key. Whether you’re trading based on economic data, central bank policies, or commodity prices, keeping an eye on the bigger picture will help you make better-informed decisions.
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