USD/CAD holds onto recovery move near 1.4000 despite firm dovish Fed bets

• USD/CAD grips Monday’s recovery move around 1.4000 following footprints of the US Dollar.
• The US ISM Manufacturing PMI fell at a faster-than-expected pace to 48.2 in November.
• Investors await US ADP Employment Change, and Canada’ employment data.

The USD/CAD pair clings to Monday’s recovery move to near 1.4010 during the Asian trading session on Tuesday. The Loonie pair bounced back on Monday as the US Dollar (USD) rebounded despite weak United States (US) ISM Manufacturing Purchasing Managers’ Index (PMI) data for November strengthened the case for another interest rate cut by the Federal Reserve (Fed) this year.

At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades calmly near 99.40. The USD Index recovered on Monday after revisiting the monthly low around 99.00.

The ISM showed that the Manufacturing PMI declined at a faster pace to 48.2. Economists expected the PMI to come in lower a 48.6 from 48.7 in October. This was the ninth straight month when the Manufacturing PMI was expected to come in below 50.0. A figure below 50.0 is considered a contraction in the economic activity.

According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in December is 86.5%.

Going forward, the major trigger for the US Dollar will be the ADP Employment Change and the ISM Services PMI data for November, which are scheduled for Wednesday.

Meanwhile, the Canadian Dollar (CAD) is expected to trade on the sidelines as investors await the employment data for November, which will be released on Friday. The labor market data is expected to influence market expectations for the Bank of Canada’s monetary policy outlook.

Economists expect the Canadian Unemployment Rate to have accelerated to 7% from 6.9% in October. The Canadian laborforce is expected to have remained steady.