- USD/CAD gains as the chances of significant rate cuts by the Fed diminish.
- The CME FedWatch Tool shows a 92.1% probability of a 25-basis-point cut in November, with no expectation for a 50-basis-point reduction.
- The Canadian Dollar struggles as September's inflation data has renewed expectations for a 50-basis-point rate cut by the Bank of Canada.
USD/CAD is gaining momentum, buoyed by a strong US Dollar (USD) amid diminishing expectations for substantial rate cuts by the Federal Reserve (Fed) following robust labor and inflation data. The USD/CAD pair is trading around 1.3770 during early European hours on Thursday.
Market sentiment indicates a total of 125 basis points (bps) in rate cuts by the Fed over the next year. The CME FedWatch Tool shows a 92.1% likelihood of a 25-basis-point cut in November, with no anticipation for a larger 50-basis-point reduction.
Traders are also awaiting the US Retail Sales data, set to be released later today, with expectations for a 0.3% monthly increase in consumer spending for September, up from 0.1% in the previous report.
Meanwhile, the Canadian Dollar (CAD) is under pressure as Canada’s latest inflation report for September has rekindled expectations for a 50-basis-point rate cut by the Bank of Canada (BoC) next week. The annual inflation rate fell to 1.6%, the lowest since February 2021, dipping below the central bank's 2% target.
Additionally, a report from Standard Chartered’s Research predicts that the BoC will opt for a 50-basis-point cut at both of its remaining meetings in 2024, rather than the previously anticipated 25 bps. Factors such as slowing economic growth, decreasing inflation, rising inflation expectations, and increasing mortgage costs support the case for deeper cuts. The forecast now projects the BoC's policy rate to be at 3.25% by the end of 2024 and 2.25% by the end of 2025, down from earlier estimates of 3.75% and 3.0%, respectively.
