Another quiet day in a generally quiet week for the Canadian dollar. The overall market direction has been incremental gains for the Canadian dollar versus the US dollar, mostly based on the perception that the Federal Reserve is inching ever closer to a rate cut in September, with markets currently betting that there is a 70% chance of this happening by then. This has helped alleviate some market concerns about the BoC getting too far ahead of the FED with respect to interest rate differentials.
Yesterday, FED Chair Powell, during his Semiannual Monetary Policy report to Congress, stated that inflation is moving sustainably towards 2%. However, he also indicated that he sees risks in both cutting too early and too late. An early cut could allow inflation to resurface, while a late cut could have a detrimental impact on employment and the US economy. Fed Chair Powell is expected to strike a similar tone today as he addresses Congress again.
Market analysts are paying particular attention to tomorrow’s US CPI data and are expecting inflation to ring in at 3.1% year-over-year versus last month’s 3.3%. If inflation comes in at the expected level or even lower, this could be another check mark for the FED as they attempt to pull the trigger on the first rate cut. This could strengthen the Canadian dollar further against the US dollar and potentially push the USD/CAD pair below the 1.36 mark for the first time in a long while.
The Canadian dollar is currently trading at 1.3619 CAD against the US Dollar.
