• USD/CAD edges lower due to a vulnerable US Dollar.
• The Fed is widely anticipated to begin reducing interest rates from September.
• Further decline in Canada’s inflation has prompted BoC’s subsequent rate-cut hopes.

The USD/CAD pair exhibits a subdued performance below the round-level resistance of 1.3700 in Wednesday’s New York session. The Loonie asset remains under pressure as the US Dollar (USD) has fallen on the backfoot. The US Dollar weakens as investors see the Federal Reserve (Fed) to begin reducing interest rates from the September meeting.

The US Dollar Index, which tracks the Greenback’s value against six major peers, registers a fresh four-month low near 103.70. More downside remains likely as trades are pricing in two rate cuts this year against one signalled by latest dot plot.

Market expectations for Fed rate cuts were prompted by cooling inflationary pressures and signs that the labor market lose momentum. Recent annual inflation readings were softer-than-expected. Also, monthly headline inflation deflated for the first time in more than four years, pointed to progress in disinflation after stalling in the first quarter. Meanwhile, the labor demand has slowed and the Unemployment Rate has risen to 4.1%.