- The US dollar retreated across the board as the FOMC minutes heightened rate cut hopes for this year.
- Futures markets are pricing a 72% chance of at least a 25 bps rate cut in September.
- A moderate but steady recovery in crude prices poses additional support to the loonie.
The US dollar retreated from two-week highs above 1.3700 on Wednesday, following the release of the FOMC m¡inutes and weighed by falling US Treasury yields. The pair, however, maintains its near-term bullish trend intact, with downside attempts contained at the upper range of the 1.3600s for now.
The minutes of June’s Federal Reserve meeting highlighted a deep division between committee members, with most policymakers showing their willingness to ease monetary policy further in the coming months, and two of them calling for a rate cut in July.
The dovish party cited anchored mid- and long-term inflation expectations while assessing that the inflationary effect of Trump’s tariffs will be temporary or modest. The “hawkish” side supports maintaining interest rates at current levels, as the CPI remains above target and upside risks to inflation remain high
Investors ramp up bets of a Fed rate cut in September.
Futures markets increased their bets on a near-term rate cut after the release of the minutes. Bets on a July cut remained practically unchanged, slightly above 6%, but the odds for at least 25 bps cuts in September increased to 72% from below 65% ahead of the minutes.
Beyond that, a $39 billion auction of US long-term yields was met with strong demand on Wednesday, which snapped a five-day rally in US Treasury yields and increased negative pressure on the US dollar.
Regarding the Canadian dollar, a moderate uptrend in crude prices, which have appreciated nearly $4 from late June lows, has contributed to supporting the Canadian dollar in the absence of relevant macroeconomic releases this week.
