USD/CAD gains ground below 1.3550, Canadian PMI data eyed

The USD/CAD pair gains ground below the mid-1.3500s during the early Asian trading hours on Tuesday. A strengthening US Dollar (USD) and higher US Treasury bond yields provide some support for the pair. USD/CAD currently trades near 1.3540, adding 0.03% on the day. The January Canadian Ivey Purchasing Managers Index (PMI) is due later on Monday, which is expected to ease from 56.3 in December to 55.0 in January.

The Federal Reserve (Fed) Chair Jerome Powell said on Sunday night that the US central bank remains on track to cut interest rates three times this year, a move that’s expected to begin as early as May. The chance of a March rate cut has dropped to 15%, compared to 38% just a day ago, according to the CME FedWatch tool. The higher-for-longer rate narrative in the US might boost the Greenback and act as a tailwind for the USD/CAD pair. 

Investors anticipate the Bank of Canada (BoC) to begin cutting its benchmark interest rate from a 22-year high of 5% in April, according to a survey released by the central bank on Monday. By the end of 2024, the markets expect the median forecast for the policy rate to come down to 4%, which is consistent with their forecast in the previous survey released in November.

Meanwhile, the decline in oil prices might exert some selling pressure on the commodity-linked Loonie as Canada is the largest oil exporter to the United States. 

Market players will keep an eye on the Canadian Building Permits for December and Ivey PMI data, due later on Tuesday. On Friday, attention will shift to the Canadian labor market data, including the Unemployment Rate.