USD/CAD moves below 1.3700 due to rising bets for a Fed rate cut in September

• USD/CAD loses ground following the dovish comments from the Fed officials.
• San Francisco Fed President Mary Daly emphasized that the US central bank should reduce rates gradually.
• The upside of the commodity-linked CAD could be retrained due to lower crude Oil prices.

USD/CAD retraces its recent gains from the previous two sessions, trading around 1.3670 during Monday’s European hours. This downside is attributed to the tepid US Dollar (USD) following dovish comments from Federal Reserve (Fed) officials regarding their policy stance. This has increased the odds of an interest rate cut by the central bank in September and undermined the USD/CAD pair.

Federal Reserve Bank of San Francisco President Mary Daly emphasized Sunday that the US central bank should take a gradual approach to reducing borrowing costs, according to the Financial Times. Daly pushed back against economists' concerns that the US economy is on the verge of a sharp slowdown that would justify rapid interest rate cuts.

Federal Reserve Bank of Chicago President Austan Goolsbee warned that central bank officials should be cautious about keeping a restrictive policy in place longer than necessary. While it's uncertain whether the Fed will cut interest rates next month, failing to do so could harm the labor market, per CNBC.

However, the downside of the USD/CAD pair could be restrained as the commodity-linked Canadian Dollar (CAD) may struggle due to lower WTI prices. Given the fact that Canada is the biggest crude Oil exporter to the United States (US).

West Texas Intermediate (WTI) Oil price drops to near $75.00 per barrel at the time of writing. The decline in crude Oil prices is driven by concerns over weaker demand from China, the world's top oil importer. However, any escalation in geopolitical tensions related to the Israel-Hamas and Russia-Ukraine conflicts could raise supply concerns, potentially limiting further declines in Oil prices.

Hamas has issued a statement rejecting the terms for a hostage release-ceasefire deal discussed in Doha on Thursday and Friday, according to Reuters citing a local news agency Times of Israel. Additionally, concerns about escalating tensions between Ukraine and Russia were heightened as Ukraine initiated the largest invasion of Russia since World War II.

Traders are likely to focus on Canada's Consumer Price Index (CPI) data for July on Tuesday, with market expectations pointing to a 2.5% year-on-year increase, down from the previous 2.7% rise. Meanwhile, the monthly index is expected to rise by 0.3%, swinging from the previous 0.1% decline.