USD/CAD trades flat above 1.3650 despite Fed officials signals potential rate cut

• USD/CAD consolidates in a trading range near 1.3685 in Thursday’s early Asian session. 
• Fed’s Waller signalled a potential interest rate cut this year. 
• Softer Canadian CPI inflation data has triggered the BoC rate cut expectation next week. 

The USD/CAD pair oscillates in a familiar trading range around 1.3685 during the early Asian session on Thursday. The further decline in the USD Index (DXY) amid the firmer rate-cut bets by the Federal Reserve (Fed) might cap the pair’s upside. Investors will monitor the US weekly Initial Jobless Claims and the Philly Fed Manufacturing Index later on Thursday, along with the speech by the Fed’s Lorie Logan.

On Wednesday, Fed Governor Christopher Waller said that the US central bank is ‘getting closer’ to an interest rate cut as long as there are no major surprises on inflation and employment. Meanwhile, Richmond Fed President Tom Barkin said that the central bank needs more evidence that the process of disinflation is sustained before cutting the key interest rate.

According to the CME Group’s FedWatch Tool, traders in the fed funds futures market are pricing in an initial quarter percentage point rate cut in September followed by at least one more before the end of this year. The growing speculation of Fed rate cuts and dovish comments from Fed officials is likely to undermine the Greenback in the near term. 

On the Loonie front, slower-than-expected Canadian Consumer Price Index (CPI) inflation data has spurred the expectation that the Bank of Canada (BoC) might cut another interest rate next week, which exerts some selling pressure on the Canadian Dollar (CAD). Financial markets have priced in nearly 93% odds of July rate cuts by the BoC, up from 82% before the inflation data was released. 

On the other hand, the higher crude oil prices amid a larger-than-expected weekly drop in US crude oil inventories might lift the commodity-linked Loonie. It’s worth noting that Canada is the biggest Oil exporter to the United States (US).