USD/CAD slides below 1.3700 mark, fresh YTD trough amid sustained USD selling

• USD/CAD remains under some selling pressure at the start of a new week amid a weaker USD.

• US fiscal concerns and bets that the Fed will cut rates further drag the USD to a one-month low.

• Diminishing odds for a June BoC rate cut overshadow softer Oil prices and underpin the Loonie.

The USD/CAD pair prolongs its downtrend witnessed over the past week or so and attracts some follow-through selling during the Asian session on Monday. The downward momentum drags spot prices below the 1.3700 round figure, to the lowest level since October 2024 and is sponsored by a broadly weaker US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, drops to a nearly one-month low amid worries about the worsening US fiscal situation and dovish Federal Reserve (Fed) expectations. In fact, a sweeping tax cut and spending bill backed by US President Donald Trump is expected to add around $4 trillion to the nation's deficit over the next 10 years and swell the federal government's debt.

Meanwhile, the softer US Consumer Price Index and Producer Price Index (PPI) released earlier this month pointed to signs of easing inflationary pressures. This, in turn, reaffirmed market bets that the US central bank will lower borrowing costs further by the end of this year to support the economy. This is seen as another factor undermining the USD and exerting downward pressure on the USD/CAD pair.

The Canadian Dollar (CAD), on the other hand, continues to draw support from last week's hotter-than-expected Canadian core inflation figures, which dashed hopes for a Bank of Canada (BoC) interest rate cut in June. This, to a larger extent, overshadows a modest intraday downtick in Crude Oil prices – which tends to undermine the commodity-linked Loonie – and supports prospects for a further USD/CAD depreciation.