USD/CAD extends upside above 1.3750, with all eyes on BoC rate decision

• USD/CAD trades in positive territory for the sixth consecutive day near 1.3785 in Wednesday’s early Asian session. 
• BoC is widely anticipated to cut its benchmark interest rate by 25 bps to 4.50% at its July meeting on Wednesday. 
• Economists expect the Fed will cut interest rates twice this year amid the cooler inflation over the past few months. 

The USD/CAD pair extends a rally around 1.3785 during the early Asian session on Wednesday. The pair edges higher amid the risk-off mood, which boosts the Greenback broadly. Investors will closely monitor the Bank of Canada (BoC) interest rate decision later in the day, which is expected to cut rates again by 25 basis points (bps) to 4.5%.

After the signs of easing price pressures in June, the financial markets have almost fully priced in a 25 bps rate cut by the BoC that would bring the benchmark rate down to 4.5%. Taylor Schleich, rates strategist at the National Bank of Canada, said, “A rate cut is likely to be delivered,” and the Canadian central bank might reiterate its message that future cuts will be based on incoming data.

Meanwhile, demand concerns from China and easing geopolitical tensions drag crude oil prices lower to six-week lows. This, in turn, undermines the Canadian Dollar (CAD)  as Canada is the major crude oil exporter to the United States. The combination of BoC rate cut expectation and lower crude oil prices might lift the USD/CAD pair in the near term. 

On the US front, traders see the first rate cut by the US Federal Reserve (Fed) in September, with the possibility of nearly a 96%. A majority of economists in a Reuters poll anticipate the Fed will cut interest rates twice this year amid cooler inflation over the past few months and recent signs of labor market weakness. 

Data released on Tuesday showed that US Existing Home Sales dropped by 5.4% MoM in June from 4.11M to 3.89M, worse than expected. Meanwhile, the Richmond Fed Manufacturing Index came in at -17 in July versus -10 prior, highlighting manufacturing weakness around the region. Later on Wednesday, traders will take more cues from the advanced US Goods Trade Balance, seconded by New Home Sales, and the preliminary S&P Global Manufacturing and Services PMIs for June.