USD/CAD gathers strength to recapture 1.3800 ahead of Fed policy

• USD/CAD aims to recapture 1.3800 amid firm US Dollar.
• A sharp decline in Fed rate-cut bets boosts the US Dollar’s appeal.
• Investors look for fresh cues about BoC’s subsequent rate cuts.

The USD/CAD pair clings to gains near 1.3770 in Monday’s New York session. The Loonie asset aims to extend upside as the US Dollar (USD) remains firm due to diminished Federal Reserve (Fed) rate-cut bets for the September meeting.

Traders pares Fed rate-cut bets swiftly after the strong United States (US) Nonfarm Payrolls (NFP) report for May eliminated fears of normalizing labor market conditions. The report showed that labor demand remained robust across all sectors and wage growth was stronger-than-expected.

Investors are now expecting that the Fed will cut interest rates once this year, either in November or December. For more cues over the interest rate outlook, investors will pay close attention to the US Consumer Price Index (CPI) data for May and the Fed’s monetary policy, which are scheduled for Wednesday.

Annual core inflation, which excludes volatile food and energy prices, is estimated to have decelerated to 3.5% from April’s reading of 3.6%. In the same period, headline inflation is expected to have grown steadily by 3.4%.

The Fed is widely anticipated to maintain interest rates steady in the range of 5.25%-5.50% with a hawkish outlook as the last mile for inflation to return to the desired rate of 2% appears to be stickier.

On the Canadian Dollar front, investors await the speech from Bank of Canada (BoC) Governor Tiff Macklem, which is scheduled for Wednesday. BoC Macklem will provide more cues about whether the central bank will announce subsequent rate cuts. Last week, the BoC lowered its key borrowing rates for the first time in four years.