USD/CAD extends downside below 1.3630 in countdown to Canadian Inflation

USD/CAD slides further below 1.3630 with investors focusing on the Canadian Inflation on Wednesday.
Fed Powell is expected to say over the size of interest rate cuts in September.
Lower Oil prices fail to dent the Canadian Dollar’s strength.

The USD/CAD pair continues its losing streak for the third trading session on Tuesday. The Loonie asset weakens below 1.3630 as the near-term appeal of the US Dollar (USD) is downbeat due to firm expectations that the Federal Reserve (Fed) will start reducing interest rates in September.

Firm expectations for Fed interest-rate cuts in September have improved the appeal of risky assets. S&P 500 futures have posted decent gains in the European session, exhibiting the upbeat risk appetite of investors. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, remains close to a more-than-seven-month low of 101.77. 10-year US Treasury yields hover near 3.87%.

While the Fed seems certain to pivot to policy normalization in September, investors are anxious about whether the central bank will do the process gradually or deliver a 50 basis points (bps) interest rate cut decision. To get more cues about the same, market participants will focus on the Federal Open Market Committee (FOMC) minutes and Fed Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium on Wednesday and August 22-23, respectively.

Meanwhile, the Canadian Dollar (CAD) outperforms despite the continuation of a bearish streak in the Oil price. Growing expectations of a ceasefire between Iran and Israel, and China’s dismal economic outlook have weighed heavily on Oil prices. Lower Oil prices result in a big dent in foreign flows to Canada as it is the largest energy exporter to the United States (US).

Going forward, the next move in the Canadian Dollar will be influenced by Canada’s Consumer Price Index (CPI) data for July, which will be published on Wednesday. Economists estimated that the headline CPI rose at a slower pace of 2.5% from 2.7% in June. Monthly headline inflation is expected to have grown by 0.3% after deflating earlier. Slowing inflationary pressures would boost speculation for more interest rate cuts by the Bank of Canada (BoC).

Economic Indicator

Consumer Price Index (YoY)

The Consumer Price Index (CPI), released by Statistics Canada on a monthly basis, represents changes in prices for Canadian consumers by comparing the cost of a fixed basket of goods and services. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Canadian Dollar (CAD), while a low reading is seen as bearish.