USD/CAD rebounds above 1.3450 as risk sentiment deteriorates ahead of Fedspeak

• USD/CAD holds positive ground around 1.3460 in Wednesday’s early European session.
• The risk aversion sentiment lifts the safe-haven currency like the US Dollar, but Fed rate cut bets might cap its upside.
• The BoC is anticipated to cut its interest rate next week as inflation eases.

The USD/CAD pair recovers some lost ground near 1.3460, snapping the three-day losing streak during the early European session on Wednesday. The uptick of the pair is bolstered by the modest recovery of the US Dollar (USD). Market players will take more cues from the Federal Reserve’s (Fed) Christopher Waller and Raphael Bostic speeches later on Wednesday. 

The cautious mood ahead of the AI giant’s Nvidia earnings reports and Fedspeak might boost the safe-haven flows, benefiting the USD. However, the firmer expectation that the US Fed would lower its borrowing costs in September might cap the pair’s upside. The markets have fully priced in a 25 basis points (bps) rate cut in September, while the possibility of a deeper rate cut stands at 34.5%, according to the CME FedWatch Tool. Traders see 100 bps Fed easing this year.

San Francisco Fed President Mary Daly said on Monday that she believes it’s appropriate for the Fed to begin cutting interest rates. Her comments echoed remarks from Fed Chair Jerome Powell at the Jackson Hole symposium, who said that he has gained confidence that inflation is on course to the 2% target and “the time has come for policy to adjust.”  

On the Loonie front, economists expect the Bank of Canada (BoC) to cut interest rates for a third consecutive meeting on the September 4 policy meeting, according to the median estimate in an August poll conducted by Bloomberg. This, in turn, might weigh on the Canadian Dollar (CAD) against the USD. Meanwhile, the lower crude oil prices contribute to the commodity-linked CAD’s downside, as Canada is the leading exporter of oil to the United States.