The US service sector business activity fell to a 4-year low in June, while private employment in the US also decreased during the same month. In Canada, the trade deficit in May was larger than expected at C$1.93 billion. This has led to a bearish outlook for the USD/CAD as the Canadian dollar strengthens against a weak US dollar. The recent economic reports in the US indicate a softening economy, increasing the likelihood of a rate cut by the Fed in September.
On Wednesday, investors focused on US data showing a decline in business activity and employment. The ISM reported a decrease in the PMI from 53.8 to 48.8, signaling weakness in the economy. Additionally, private employment in the US dropped in June, surprising economists. Unemployment claims also rose, indicating a potential increase in the unemployment rate, which could prompt the Fed to cut rates. Meanwhile, Canada’s trade deficit surpassed expectations, suggesting a decline in economic activity.
Despite the economic challenges, rate-cut bets remain low in Canada due to an uptick in inflation. Investors are now waiting for the US nonfarm payrolls report for further insights. Technically, the USD/CAD price has broken below key support levels, with a bearish bias evident in the market. The price is approaching the 1.3600 support level, which could prompt a reversal or further decline depending on market conditions.