The USD/CAD exchange rate held above 1.3550 during Monday’s Asian trading session, with the US Dollar showing strength. However, the potential for further interest rate cuts by the US Federal Reserve in 2024 could limit the USD’s gains. Market predictions, as per the CME FedWatch Tool, suggest a 50% chance of a 50 basis point rate reduction to a range of 4.0-4.25% by year-end.
The US Dollar has been gaining ground as Treasury yields recover. The US Dollar Index (DXY), which tracks the value of the USD, remains near 100.80. The yields on 2-year and 10-year US Treasury bonds are at 3.59% and 3.74%, respectively.
Philadelphia Fed President Patrick Harker commented on Friday that the US central bank has navigated a complex economic environment effectively. He likened monetary policy to driving a bus, emphasizing the need to balance speed.
Canadian retail sales saw a 0.9% increase in July, reaching $66.4 billion. This rebounded from June’s 0.2% drop and exceeded the anticipated 0.6% rise. Seven out of nine retail subsectors experienced growth, with motor vehicle and parts dealers leading the way. This is the largest increase in Canadian retail sales since April 2023, challenging the Bank of Canada’s calls for aggressive rate cuts.
The Canadian Dollar’s potential decline is mitigated by higher crude oil prices. West Texas Intermediate (WTI) oil prices are nearing $71.50. The rise in oil prices is attributed to concerns over possible supply disruptions due to increasing tensions in the Middle East.
On Sunday, Hezbollah and Israel had a significant exchange of fire. The Lebanese militant group launched missiles into northern Israeli territory after a heavy bombardment, marking some of the most severe conflict in nearly a year, as reported by CNN.
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