USD/CAD steadies above 1.3600 as prospects of BoC’s subsequent rate cuts improve

The USD/CAD pair holds ground above the crucial support of 1.3600 in Monday’s European session. The Loonie asset trades in a tight range inside Friday’s range, while the outlook remains uncertain as easing United States (US) labor market strength has increased investors’ confidence for early rate cuts by the Federal Reserve (Fed).

S&P 500 futures have recovered losses witnessed in early European trading hours, portraying a recovery in investors’ risk appetite. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to three-week low near 104.85. 10-year US Treasury yields edge higher after falling to near weekly low around 4.3%.

The US NFP report for June showed that the Unemployment rate rose unexpectedly to 4.1%. Also, Average Hourly Earnings, a measure that gauge wage growth, decelerated expectedly on monthly and an annual basis. This has eases risks of inflation remaining persistent.

Next trigger for the US Dollar will be the US Consumer Price Index (CPI) data for June, which will be published on Thursday. The US CPI report is expected to grow steadily on year by 3.4%. The scenario in which the core inflation grew steadily or at a higher pace would dampen market speculation for Fed rate cuts in September. On the contrary, higher-than-expected inflation reading will strengthen the same.

On the Canadian Dollar (CAD) front, market expectations for subsequent rate cuts by the Bank of Canada (BoC) have improved due to turmoil in labor market. Canada’s Unemployment Rate rose at a faster pace to 6.4% from the estimates of 6.3% and the prior release of 6.2%. Also, the labor market faced an unexpected drawdown as 1.4K employees were laid-off.