USD/CAD stays on sidelines near 1.3800 with BoC policy meeting in focus

• USD/CAD trades back and forth near 1.3800 ahead of BoC interest rate meeting.
• The BoC is expected to reduce interest rates further by 25 bps.
• The uncertainty over US presidential elections has dampened market sentiment.

The USD/CAD pair trades in a tight range near the round-level figure of 1.3800. The Loonie asset consolidates as investors shifts to the sidelines with focus on the Bank of Canada’s (BoC) monetary policy meeting scheduled for 13:45 GMT.

The BoC is expected to deliver subsequent rate cuts due to cooling inflationary pressures. BoC’s core Consumer Price Index (CPI) accelerated to 1.9% in June but remains below the bank’s target of 2%. Also, Canada’s labor market conditions have deteriorated due to higher interest rates. The central bank is expected to reduce interest rates again by 25 basis points (bps) to 4.5%. Earlier, the BoC pivoted to policy normalization in the June meeting.

Meanwhile, sheer weakness in the Oil price has dampened the Canadian Dollar’s (CAD) appeal. The Oil price remains in the bearish trajectory from past three weeks due to weak demand outlook and easing supply concerns. It is worth noting that Canada is the leading exporter of Oil to the United States (US) and lower Oil prices weakens the Canadian Dollar.

The market sentiment remains risk-averse amid United States (US) political uncertainty. S&P 500 futures have posted significant losses in European trading hours. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to weekly gains near 104.50.

In today’s session, investors will focus on the US S&P Global flash Purchasing Managers’ Index (PMI) data for July, which will be published at 13:45 GMT. The report is expected to show that the Manufacturing PMI expanded at a nominal pace to 51.7 from June’s reading of 51.6. The Services PMI, a measure to activities in the service sector, is estimated to have expanded at a slower pace to 54.4 from the prior release of 55.3.

While the major trigger for the US Dollar will be the Personal Consumption Expenditure Price Index (PCE) data for June, which will be published on Friday. The inflation measure will provide cues about when the Federal Reserve (Fed) will start reducing interest rates.