USD/CAD Faces Pressure as Fed Rate Cut Bets and Oil Support Canadian Dollar

USD/CAD Faces Pressure as Fed Rate Cut Bets and Oil Support Canadian Dollar

USD/CAD continues to soften, trading at approximately 1.3760 during Thursday's Asian session. The US Dollar (USD) is under pressure, weakened by growing expectations for additional Federal Reserve (Fed) rate cuts, while the Canadian Dollar (CAD) benefits from both commodity price movements and market expectations ahead of the Trump-Putin summit.

Fed Rate Cut Bets Weigh on USD

The US Dollar is facing downward pressure as market participants increase bets that the Fed will reduce interest rates further. The CME FedWatch Tool shows that traders are pricing in a 94% chance of a 25 basis point rate cut at the upcoming September meeting. Furthermore, US Treasury Secretary Scott Bessent stated that there is a possibility of a 50-basis-point cut in September, which continues to put pressure on the USD.

US President Trump and Rate Cut Expectations

In addition, US President Donald Trump shared his views on interest rates, indicating that they should be significantly lower, around 1%, suggesting that the Fed should implement a more aggressive rate-cut strategy. These comments have further fueled market speculation that the Fed may lower rates at the September meeting.

Oil Price Strength Supports CAD

The Canadian Dollar is also benefiting from rising oil prices, as crude oil prices continue to climb due to increased risk premiums ahead of the Trump-Putin summit. The CAD is often sensitive to fluctuations in oil prices, given that Canada is a major oil exporter. This has provided added support for the Canadian Dollar, helping it strengthen against the USD.

Market Outlook for USD/CAD

Looking ahead, the USD/CAD pair is likely to remain pressured, with the US Dollar facing challenges from the expectations of further rate cuts by the Federal Reserve. On the other hand, the Canadian Dollar may continue to benefit from rising oil prices and expectations of stronger commodity-linked growth.

The market will closely watch for any developments regarding the Trump-Putin summit, as geopolitical events often have a significant impact on commodity prices, which in turn affect the CAD.