USD/CAD posts fresh three-month high near 1.3800 as BoC cuts rates again

• USD/CAD climbs to a fresh three-month high of 1.3800 as BoC cuts interest rates by 25 bps to 4.5% as expected.
• The US Dollar declines after a mixed US S&P Global flash PMI report for July.
• This week, investors will focus on the US PCE inflation for June.

The USD/CAD pair jumps to a fresh three-month high near the round-level resistance of 1.3800 in Wednesday’s American session. The Loonie asset strengthens as the announcement of Bank of Canada’s (BoC) subsequent rate cuts has weighed on the Canadian Dollar (CAD).

The Canadian currency weakens as the BoC reduces its key borrowing rates again by 25 basis points (bps) to 4.5%. The BoC was expected to lower its interest rates again amid cooling inflationary pressures and deteriorating labor market conditions.

The central bank forecasts consumer price inflation to stabilize at 2% by 2025 and has dialled down its growth forecast to 1.2% from 1.5%.

The appeal of the Canadian Dollar was already downbeat due to weak Oil prices. Weak Oil demand outlook due to China’s dismal economic prospects and easing supply concerns have beaten down the Oil price. It is worth noting that Canada is the leading exporter of Oil to the United States (US), and weak Oil prices weigh on the Canadian Dollar.

Meanwhile, the US Dollar (USD) has slumped after the release of the mix S&P Global PMI report for July. The Composite PMI data came in higher at 55.0 from the former release of 54.8. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls sharply from a weekly high of 104.50 to 104.20.

Going forward, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for June, which will be published on Friday. The core PCE inflation, a Federal Reserve’s (Fed) preferred inflation tool, is estimated to have decelerated to 2.5% from May’s figure of 2.6%, with the monthly figure growing steadily by 0.1%.