USD/CAD Holds Near 1.3750 as Weak US Data Boost Fed Rate Cut Odds

The USD/CAD pair is steady around 1.3750 in early Monday trading after two straight days of losses, as the US Dollar struggles under the weight of softer US economic data and growing expectations for Federal Reserve rate cuts.

According to the CME FedWatch Tool, markets now see an 89% chance of a 25 basis point rate cut in September, up from 80% a week earlier. Fed Governor Michelle Bowman reinforced dovish sentiment over the weekend, stating that three rate cuts are likely appropriate this year, citing weakening labor market conditions as a bigger concern than inflation risks. St. Louis Fed President Alberto Musalem also warned of potential downside risks to jobs, despite stable economic activity, emphasizing the need for data accuracy in policy decisions.

Looking ahead, traders will focus on Tuesday’s US CPI report and Thursday’s US PPI figures, along with the UK Q2 GDP print, for fresh directional cues.

On the Canadian side, the Bank of Canada’s rate cut prospects have strengthened following weaker labor market data. Statistics Canada reported on Friday that the economy shed 40.8K jobs in July, with the unemployment rate holding at 6.9%. The disappointing figures have added to dovish expectations, potentially limiting the Canadian Dollar’s upside against the greenback.

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