USD/CAD has ticked higher in the Tuesday session, after recording strong gains at the start of the week. Currently, the pair is trading at 1.3433, down 0.05% on the day. Earlier in the day, the pair dropped to 1.3421, marking a 2-week low. There are no Canadian events on the schedule. In the U.S., factory orders is projected to fall by 1.0%. As well, Federal Reserve chair Jerome Powell will speak about Federal policy at an event in Chicago.
Manufacturing numbers in May were a disappointment on both sides of the border. In the U.S., ISM Manufacturing PMI slowed to 52.1, missing the estimate of 53.0. This was the weakest score since October 2016. In Canada, manufacturing PMI also slowed, dropping from 49.7 to 49.1. This marked a second straight month of contraction in the manufacturing sector. The softer numbers reflect the toll that trade tensions have taken on manufacturing, as global demand has weakened. The export-reliant Canadian economy has been hard hit by weaker global conditions. The threat of a new trade spat between the U.S. and Mexico could weigh on the Canadian dollar, which is sensitive to trade tensions.
The Federal Reserve has sounded neutral about a rate move, but the markets are expecting a rate cut, and the president of the St. Louis Fed came out in favor of a cut on Monday. James Bullard was blunt and pessimistic, saying that the Fed might have to lower rates shortly due to low inflation and the ongoing trade war with China. Bullard warned that the Fed may have to deal with “an economy that is expected to grow more slowly going forward, with some risk that the slowdown could be sharper than expected due to ongoing global trade regime uncertainty“. Bullard added that the current benchmark rate, which is at a range of 2.25% to 2.50%, is too high for current economic conditions, and recommended lowering rates in order to stabilize the economy. The Canadian dollar took advantage of the dovish comments, starting the week with strong gains.
