Traders reduce US Federal Reserve rate hike bets following weaker US economic data, lifting the Canadian Dollar ahead of July CPI.
The USD/CAD pair declined to around 1.3860 in early European trading, reaching its lowest level since June 3. The move follows softer US economic data, including an unexpected drop in Retail Sales, which has led markets to scale back expectations for a Fed rate hike next month.
Odds of a September rate increase have fallen to 30%, down from 40% a week earlier, according to the CME FedWatch tool. Analysts suggest the data points to slowing consumer spending and weaker inflation, reducing pressure on the Fed to tighten further. The Bank of Canada held rates steady at 2.25% in July, signaling caution on persistent inflation risks.
Canada’s July CPI data, due Friday, will be closely watched for further direction. Markets expect the BoC to maintain its current policy stance in September.