USD/CAD edges lower to near 1.3490 as cautious tone regarding the Fed’s rate cuts

• USD/CAD depreciates after the FOMC Minutes expressed concerns over rate cuts.
• Fed's easing cycle appears to be delayed, correlating with recent higher CPI and PPI.
• The decline in Crude oil prices could weigh on the Canadian Dollar.

USD/CAD expands its losses to near 1.3490 during the Asian session on Thursday as the US Dollar (USD) shows weakness, which could be attributed to the subdued US Treasury yields. However, US Treasury yields gained ground on Wednesday following the cautious tone expressed in the Federal Open Market Committee (FOMC) Minutes regarding the interest rate reductions.

The Federal Reserve's easing cycle of monetary policy appears to be delayed, which correlates with significantly higher-than-anticipated Consumer Price Index (CPI) and Producer Price Index (PPI) releases following the Federal Reserve’s January meeting, coupled with a robust jobs report.

The US Dollar Index (DXY) hovers around 104.00, with the 2-year and 10-year yields on US bonds standing at 4.65% and 4.21, respectively, by the press time. The FOMC Meeting Minutes highlighted the necessity for further evidence of disinflation to alleviate concerns of upside risks.

Presently, futures funds suggest that approximately 70% of the market forecasts a rate cut by the Federal Reserve’s June meeting. According to the CME FedWatch Tool, there's now a 52.2% possibility assigned by the market for the initiation of easing to commence in June.

The decrease in Crude oil prices may act as a constraint on the Canadian Dollar (CAD)'s upward momentum, thereby limiting losses for the USD/CAD pair. Despite geopolitical tensions in the Middle East, which typically elevate oil prices due to concerns over supply disruption, the impact is tempered by higher global interest rates, which dampen oil demand. At the time of writing, the West Texas Intermediate (WTI) oil price is hovering around $77.80 per barrel, reflecting a slight decline.

Thursday will bring Canada’s Retail Sales data for December. On the other side, S&P US PMI data, weekly Initial Jobless Claims, and Existing Home Sales will be eyed