USD/CAD consolidates its losses near 1.3530, eyes on US inflation data

• USD/CAD remains on the defensive around 1.3530 amid the USD weakness.
• The softer US data might convince the Federal Reserve (Fed) to end its tightened policy sooner than expected.
• A rebound in oil prices limits the downside of the Canadian Dollar (CAD).
• The Canadian GDP and US Nonfarm Payrolls will be in the spotlight.

The USD/CAD pair consolidates its recent losses below the mid-1.3500s during the early Asian session on Thursday. The softer US economic data and a decline in Treasury yields continue to exert downward pressure on the Greenback. The major pair currently trades near 1.3530, unchanged on the day.

On Wednesday, Automatic Data Processing, Inc. revealed that the US ADP Employment Change declined to 177K in August from 371K in July and missed the market expectation of 195K. Meanwhile, the first estimate of Personal Consumption Expenditures (PCE) Prices for the second quarter fell to 2.5% from 2.6% previously. The second measurement of Gross Domestic Product (GDP) Annualised Q2 decreased to 2.1% from the first 2.4% estimate.

Markets anticipate that the Federal Reserve (Fed) will end its tightened policy sooner than expected. According to the CME FedWatch tool, markets are now pricing near 40% a rate hike in November and will cut the rate in June 2024. This, in turn, exerts some selling pressure on the Greenback across its rivals and acts as a headwind for the USD/CAD pair.

On the Loonie front, no relevant data was released from the Canadian docket earlier this week. Nevertheless, a rebound in oil prices limits the downside of the Canadian Dollar as Canada is the largest exporter of crude to the US. Last week, the monthly Canadian Retail Sales for June expanded by 0.1% from the previous month, better than the expectation of 0%. Retail Sales ex-auto declined 0.8%, worse than the market consensus of an increase of 0.3%. Market players will take cues from the Q2 Gross Domestic Product (GDP) data due later on Friday. The better-than-expected Canadian data might prompt the possibility of more tightening policy from the Bank of Canada (BoC).

Looking ahead, the Canadian Current Account Q2 and Gross Domestic Product (GDP) will be due on Thursday and Friday, respectively. On the US docket, the US Core Personal Consumption Expenditure Price Index (PCE), the weekly Jobless Claims, and the Chicago PMI will be released later in the day. The US Nonfarm Payrolls (NFP) will be the highlight of the week. Investors will find trading opportunities for the USD/CAD pair.