USD/CAD trades with bearish bias below 1.3650, investors await US PPI data

• USD/CAD weakens around 1.3630 in Friday’s early Asian session. 
• The softer US June inflation readings increased Fed rate cut bets. 
• The recovery of crude oil prices might cap the pair’s upside. 

The USD/CAD pair trades with mild losses near 1.3630 after bouncing off the two-month lows around 1.3588 during the early Asian session on Friday. The pair edges lower after the softer-than-expected US inflation readings in June have fueled the expectation of a Federal Reserve (Fed) rate cut in September, which weighs on the Greenback. 

US inflation, as measured by the Consumer Price Index (CPI), declined 0.1% MoM in June, the lowest level in more than three years, the Labor Department reported Thursday. The headline CPI increased 3.0% on a yearly basis in June, compared to a rise of 3.3% in May, below the market consensus of 3.1%. The core CPI, which excludes volatile food and energy prices, rose 3.3% YoY in June compared to May's increase and expectation of 3.4%

In response to the data, investors in the fed funds futures market increased their bets that the US Fed would lower rates starting in September. According to CME Group’s FedWatch Tool, markets are now pricing in nearly 89% odds of a September Fed meeting rate cut, up from 73% on Wednesday. 

Furthermore, the US weekly Initial Jobless Claims for the week ending July 6 increased by 222,000, compared to the previous week's 239,000, the lowest level since June 1. This figure came in better than the expectations of 236,000. 

On the Loonie front, Canada’s Unemployment Rate rose to 6.4% and the economy lost 1,400 jobs in June, prompting a higher probability that the Bank of Canada (BoC) would cut further interest rates. The weaker Canada’s June labour market data might undermine the Canadian Dollar (CAD) and create a tailwind for USD/CAD. However, the rebound of crude oil prices might help limit the CAD’s losses, as Canada is the major crude oil exporter to the United States.