The USD/CAD pair is trading positively around 1.3745 in the early European session on Tuesday, supported by a stronger Greenback and higher US Treasury bond yields. Later in the day, the Canadian S&P Global Manufacturing Purchasing Managers Index (PMI) for June is expected to improve to 50.2 from 49.3 in May, and Federal Reserve (Fed) Chairman Jerome Powell’s speech will be closely watched.
The Fed’s cautious stance continues to support the US Dollar (USD), with traders now pricing in a 68% chance of a rate cut in September. The Bank of Canada (BoC) recently cut interest rates to 4.75%, making it the first G7 nation to do so in the current cycle. BoC Governor Tiff Macklem mentioned that Canada has room to cut rates but will not diverge too far from the Fed.
The key drivers of the Canadian Dollar (CAD) include interest rates set by the BoC, the price of Oil, the health of the economy, inflation, and the Trade Balance. Higher interest rates and Oil prices tend to be positive for the CAD, while strong economic indicators support a stronger currency. Macroeconomic data releases, such as GDP and employment figures, also influence the direction of the CAD.