Canadian Dollar gains ground above 1.3650 ahead of US PMI data

• USD/CAD trades on a weaker note near 1.3682 in Thursday’s early European session. 
• The Fed minutes indicated worries over a lack of progress on inflation.
• The Bank of Canada (BoC) may dampen hopes of a June interest rate cut. 

The USD/CAD pair weakens to 1.3682 on Thursday during the early European session. The pair edges lower despite the weaker Greenback and the lower crude oil prices. Investors await the advanced reading of the US S&P Global PMI for May, which is due on Thursday. On Friday, the Canadian Retail Sales will be released. 

The US Federal Reserve (Fed) decided to keep its benchmark interest rate in a range of 5.25%–5.50% on May 1. According to the FOMC Minutes statement, the committee acknowledged that inflation remains more sticky than they would have thought. Therefore, the Fed officials prefer to be cautious and wait for more data to gain confidence that inflation will get down to its goal of 2%. Investors are pricing in a nearly 50% chance of a September rate cut, according to the CME FedWatch tool. The higher-for-longer mantra is likely to boost the US Dollar (USD) and cap the pair’s downside in the near term. 

On the Loonie front, investors lowered their bets on the June interest rate cut and instead moved to July as the Bank of Canada (BoC) might need to see more sets of inflation, GDP, and jobs data before deciding to cut the interest rate. This, in turn, provides some support to the Canadian Dollar (CAD) and creates a headwind for USD/CAD. The money markets are pricing in a 53% chance of a 25 basis point (bps) cut in June, while the possibility of a July rate cut is fully priced in.