USD/CAD Struggles to Gain Momentum Near 1.3750 Amid Rising Crude Oil Prices; Focus Shifts to US PPI Data

The USD/CAD pair is trading slightly stronger near 1.3740 during the Asian session on Tuesday, with traders largely adopting a cautious stance ahead of key US economic data releases. The US Producer Price Index (PPI) is the main event for the day, along with a speech by Federal Reserve official Raphael W. Bostic.

The US Dollar is currently in a consolidation phase, reflecting the subdued sentiment in global markets. Market participants are closely watching the PPI data, which is expected to show a year-on-year decrease to 2.3% in July from 2.6%, with Core PPI also anticipated to drop to 2.7% from 3.0%. These figures could provide critical insight into future US interest rate decisions.

Analysts at BBH Global Currency Strategy suggest there is a possibility of a 50 basis points (bps) rate cut by the Federal Reserve, contingent on upcoming data, with current market pricing indicating a 55% likelihood. If key US economic indicators show further weakness this week, it could increase the chances of the Fed implementing more aggressive rate cuts in September, potentially weakening the USD against other currencies.

Over the weekend, Fed Governor Michelle Bowman acknowledged the recent progress in reducing inflation, but noted that it remains uncomfortably above the Fed’s 2% target. She emphasized a cautious approach in considering future policy adjustments.

On the Canadian side, the Bank of Canada (BoC) is expected to implement two additional 25 bps rate cuts this year, likely in September and October, which could limit the Canadian Dollar’s upside. However, rising crude oil prices—driven by geopolitical tensions in the Middle East and expectations of a potential easing cycle by the Fed—could support the CAD. It’s important to note that higher oil prices generally benefit the CAD, as Canada is a major oil exporter to the United States.