USD/CAD clings to gains near 1.3850 as BoC to continue aggressive rate-cut stance

• USD/CAD holds onto gains near 1.3850 as the BoC is expected to cut interest rates again by 50 bps in December.
• Economists expect the Canadian monthly Retail Sales to have grown by 0.5% in August, slower than 0.9% in July.
• The US Dollar remains supported as Fed large rate cut expectations have been tempered.

The USD/CAD pair turns sideways in Friday’s European session after posting a fresh 11-week high at 1.3870 on Thursday. The Loonie pair clings to gains as the Canadian Dollar (CAD) remains on the backfoot on expectations that the Bank of Canada (BoC) would continue an aggressive policy-easing stance in the next policy meeting in December.

The BoC reduced its key borrowing rates by a larger-than-usual size of 50 basis points (bps) to 3.75% on Wednesday, as expected. This was the fourth straight interest rate cut in a row, however, prior three rate reductions were of 25 bps.

Investors expect the BoC to cut again by 50 bps amid growing downside risks to Canadian economic growth. "We continue to expect one more 50-bps rate cut from the BoC this December," Claire Fan, an economist at RBC, wrote in a report. Fan cautioned against the real GDP growth remaining subdued for longer as interest rates remain restrictive until 2025.

Meanwhile, investors await the Canadian monthly Retail Sales data for August, which will be published on Friday. The Retail Sales data, a key measure of consumer spending, is estimated to have grown by 0.5%, slower than 0.9% in July.

In the United States (US) region, tempered expectations for the Federal Reserve (Fed) to pursue an aggressive interest rate cut cycle continue to limit the downside in the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds the key support of 104.00. Investors expect the Fed to cut interest rates by 25 bps in November and December.