USD/CAD holds positive ground above 1.3650 as risk aversion boosts the US Dollar

• USD/CAD gains ground near 1.3655 in Monday’s Asian session. 
• The political uncertainty boosts the safe-haven currency, benefitting the US Dollar. 
• Prospects of more rate cuts by the BoC weigh on the Loonie, but higher crude oil prices might cap the downside. 

The USD/CAD pair trades in positive territory for the third consecutive day around 1.3655 during the Asian trading hours on Monday. The uptick of the pair is bolstered by the firmer US Dollar (USD) amid risk-aversion. However, the upside of the pair might be capped due to growing speculation that the US Federal Reserve (Fed) would start cutting the interest rate in September. 

The political uncertainty after the report about a failed assassination attempt on US Presidential candidate Donald Trump lifts the USD, a safe-haven currency. On Saturday, former president  Donald Trump was shot in the ear during his rally in Butler, Pennsylvania in an assassination attempt. One spectator was killed in the attack, two others were critically injured and Trump was pictured with blood spilling from his ear, per BBC. 

On the other hand, wholesale inflation in the United States rose faster than expected in June, the Bureau of Labor Statistics revealed on Friday. The US PPI rose to 2.6% YoY in June, compared to the previous reading of 2.4%, better than the estimated 2.3%. Meanwhile, the core PPI climbed 3.0% YoY, beating the expectation of 2.5%. On a monthly basis, the PPI increased 0.2% MoM in June, stronger than the forecast of 0.1%.

Despite the hotter inflation data, market players remain focused on the potential of Fed rate cuts, which might exert some selling pressure on the Greenback in the near term. According to the CME Fedwatch Tool, traders have priced in above 90% chance for 25 basis points (bps) cut in September, up from 85% last Friday. Looking ahead, traders will monitor the NY Empire State Manufacturing Index for July and the Fed’s Mary Daly speech later on Monday. 

On the Loonie front, the expectation that the Bank of Canada (BoC) will further cut interest rates exerts some selling pressure on the Canadian Dollar (CAD). Meanwhile, the extended gains in crude oil prices might limit the CAD’s potential losses as  Canada is the major crude oil exporter to the United States.