USD/CAD recovers from 1.3800 as US Dollar bounces back

• USD/CAD rebounds from 1.3800 amid sharp recovery in the US Dollar.
• The Fed is expected to deliver a 50 bp rate cut in September.
• This week, investors will focus on the Canadian Employment data.

The USD/CAD pair bounces back from intraday low of 1.3793 to near 1.3856 in Tuesday’s North American session. The Loonie asset recovers as the US Dollar (USD) gains despite growing speculation that rate cuts from the Federal Reserve (Fed) will be sizeable.

An asset-specific action has been observed in global markets as United States (US) equities have rebounded, while risk-sensitive currencies continue to face a sell-off. S&P 500 futures have posted decent gains in the early American session. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps slightly above 103.00. 10-year US Treasury yields jump to near 3.83%.

While the near-term outlook of the US Dollar remains uncertain on fears of potential US slowdown amid cooling labor market conditions. The US labor market struggles to bear the heat of Fed’s almost three-year long restrictive policy framework.

This has prompted expectations that the Fed will cut interest rates sooner rather than later. According to the CME FedWatch tool, a 50-basis point (bp) rate cut in September appears imminent.

Meanwhile, a slight upside in the Loonie asset and a sharp recovery in the US Dollar suggests that the Canadian Dollar is not significantly weak against other currencies. This week, investors will focus on Canada’s Employment data for July, which will be published on Friday. The Employment report is expected to show that the labor demand witnessed a fresh addition of 22.5K workers after noting a lay-off in June. The Unemployment Rate is expected to increase further to 6.5% from the prior release of 6.4%.