USD/CAD Nears Three-Month High Awaiting US PMI Data

USD/CAD Hits Three-Month High as US PMI Data Looms

The USD/CAD pair is climbing, reaching a three-month high near 1.3880, propelled by a stronger US Dollar in anticipation of the US S&P Global Purchasing Managers’ Index (PMI) data release. Economists are projecting a moderate increase in the US PMI. The key event this week for the US Dollar will be Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium. Investors are keen to glean insights into whether the US central bank will implement interest rate cuts at its September policy meeting. In detail, the USD/CAD pair exhibits notable strength, trading close to its highest level in three months during the European trading session on Thursday. This robust performance coincides with the anticipation of the preliminary United States (US) S&P Global Purchasing Managers’ Index (PMI) data for August, scheduled for release at 13:45 GMT. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, is hovering near its weekly high of 98.40. The PMI report is anticipated to reveal a moderate pace of overall business activity. The Services PMI is expected to decline slightly to 54.2 from 55.7 in July. All eyes will be on Fed Chair Powell's address at the Jackson Hole Symposium on Friday, as investors seek clues about the future direction of monetary policy. The CME FedWatch tool indicates an approximately 81.6% probability of the Fed cutting interest rates by 25 basis points (bps) at the September meeting, bringing the range to 4.00%-4.25%. Meanwhile, the Canadian Dollar (CAD) is trading lower amid expectations that the Bank of Canada (BoC) may reduce interest rates at its September policy meeting. Analysts at Bank of America (BofA) forecast a 25-basis-point (bp) interest rate cut by the BoC at its September 17 meeting, citing below-target headline inflation and weak core inflation momentum. This week, market participants will be closely monitoring the Canadian Retail Sales data for June, due for release on Friday. This data serves as a vital indicator of the health of the Canadian economy and consumer spending trends.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America and the 'de facto' currency of numerous other countries where it circulates alongside local currencies. It's the most heavily traded currency globally, accounting for over 88% of all global foreign exchange turnover, averaging $6.6 trillion in daily transactions, according to 2022 data.

How do the decisions of the Federal Reserve impact the US Dollar?

The most significant factor influencing the US Dollar's value is monetary policy, determined by the Federal Reserve (Fed). The Fed has two mandates: price stability (controlling inflation) and full employment. Its primary tool for achieving these goals is adjusting interest rates.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme circumstances, the Federal Reserve can also print more Dollars and implement quantitative easing (QE). QE involves the Fed substantially increasing credit flow in a struggling financial system. QE typically leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process where the Federal Reserve ceases buying bonds from financial institutions and doesn't reinvest the principal from maturing bonds in new purchases. It is generally positive for the US Dollar.