USD/CAD Steady Near 1.3750 as Fed and BoC Policy Outlooks Diverge

The USD/CAD pair held its ground around the 1.3750 mark in Monday’s Asian session, supported by a stronger US Dollar as traders digested the latest US inflation data.

Fed Uncertainty Adds Pressure

The US Dollar found demand after July’s PCE Price Index highlighted sticky inflationary pressures, complicating the Federal Reserve’s (Fed) path forward. Despite the strength, markets remain convinced that policymakers will opt for a rate cut in September. According to the CME FedWatch Tool, traders now price in nearly 89% odds of a 25-basis-point cut, higher than last week’s 84%.

Investors are also watching closely for this week’s key labor market releases — including ADP Employment Change, Average Hourly Earnings, and Nonfarm Payrolls — which could shape expectations for the Fed’s next move.

Canadian Economy Faces Headwinds

While the US Dollar gains from inflation concerns, the Canadian Dollar (CAD) remains under pressure after Canada’s Q2 GDP data revealed a contraction, fueling expectations for policy easing by the Bank of Canada (BoC). Analysts believe that the slowdown could prompt policymakers to consider rate cuts later this year, even as inflation risks linger.

Outlook for USD/CAD

With both central banks leaning toward policy easing but at different speeds, the USD/CAD pair is likely to remain volatile. Stronger US labor data could provide fresh support for the Dollar, while softer numbers may boost the Loonie as markets price in deeper Fed cuts.

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