- USD/CAD struggles as traders expect the Fed to deliver a 25-basis-point rate cut on Wednesday.
- The commodity-linked Canadian dollar may face headwinds as OPEC+ could raise Oil production in December.
- The Bank of Canada is expected to deliver a rate cut on October 29.
USD/CAD extends its losses for the second consecutive day, trading around 1.3990 during the Asian hours on Tuesday. The pair depreciates as the US Dollar (USD) faces challenges due to the increased likelihood of a rate cut by the US Federal Reserve (Fed) on Wednesday.
The Fed is widely expected to lower interest rates by another 25 basis points, bringing the benchmark rate to 3.75-4.00%, at its October meeting. The CME FedWatch Tool indicates that markets are now pricing in nearly a 97% chance of a Fed rate cut in October and a 95% possibility of another reduction in December.
The US government shutdown has ignited debate among Federal Reserve officials, as policymakers weigh whether to cut rates soon to support a weakening labor market or maintain current levels amid inflation that remains persistently above the Fed’s 2% target.
The downside of the USD/CAD pair could be restrained as the commodity-linked Canadian Dollar (CAD) could face challenges amid weakening Oil prices. It is worth noting that Canada is the largest crude exporter to the United States (US).
West Texas Intermediate (WTI Oil price extends its losing streak for the third successive session, trading around $61.10 per barrel at the time of writing. Crude Oil prices decline as the Organization of the Petroleum Exporting Countries and its allies (OPEC+) are expected to increase Oil output once again for December.
The CAD may also come under pressure as markets have nearly fully priced in a 25-basis-point rate cut by the Bank of Canada (BoC) on Wednesday. Adding to the downside, US President Donald Trump announced on Saturday a 10% increase in tariffs on Canadian goods “above what they’re paying now,” in response to an advertisement from Ontario that aired during the World Series broadcast. The move is expected to weigh on business investment and export revenues, dampening growth and potentially prompting the BoC to consider additional easing to counter these effects.
