USD/CAD trades stronger above 1.3500 as Fed’s Powell signals a slow approach to rate cuts

• USD/CAD trades firmer around 1.3525 in Tuesday’s early Asian session. 
• Fed’s Powell said the central bank will lower interest rates “over time.”
• The Canadian economy expanded by 0.2% MoM in July, faster than expected; advance estimate indicated that growth likely stalled in August.

The USD/CAD pair gathers strength to near 1.3525 during the early Asian session on Tuesday. The uptick of the pair is bolstered by the stronger US Dollar (USD) after Federal Reserve (Fed) Chair Jerome Powell said the central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Investors await the US ISM Manufacturing Purchasing Managers Index (PMI) for fresh impetus, which is estimated to improve to 47.5 in September from 47.2 in August. 

Fed Chair Jerome Powell said on Monday that the recent half percentage point interest rate cut shouldn’t be interpreted as a sign that future moves will be as aggressive, adding that the next moves will be smaller. The remarks came less than two weeks after the US central bank decided to cut the 50 basis points (bps) interest rate. 

Fed officials penciled in a half point of further cuts for the remainder of 2024 and a more percentage point of reductions next year, according to the median projections at the September meeting. However, several officials estimated a smaller amount of easing through year’s end, which provides some support to the Greenback. 

Canada’s economy grew faster than expected in July but appears to expand at a slower pace in August, raising the expectation of a larger interest-rate cut by the Bank of Canada (BoC) in October. Financial markets expect the Canadian central bank to continue reducing interest rates further due to growing risks to the economy and the labor market, which might exert some selling pressure on the Canadian Dollar (CAD) and create a tailwind for USD/CAD.