USD/CAD corrects to 1.3550 on US Dollar’s modest decline

• USD/CAD drops to 1.3550 as the Fed’s belief that the underlying story of inflation easing is intact weighs on the US Dollar.
• The US Durable Goods Orders remained stronger than expected in February.
• BoC Rogers worries about Canada’s low productivity.

The USD/CAD pair falls to 1.3550 in the early American session on Tuesday. The Loonie asset faces pressure as the US Dollar drops on firm expectations that the Federal Reserve (Fed) will start reducing interest rates from the June meeting.

The Fed’s confidence in the fundamental story of inflation—that it will return to the 2% target despite hot readings in January and February—has boosted expectations for rate cuts in June. This has improved market sentiment, which has strengthened demand for risk-sensitive assets.

The S&P 500 opens on a positive note, portraying an increase in market participants’ risk appetite. The US Dollar Index (DXY) falls to 104.15 from its monthly high of 104.50 despite upbeat US Durable Goods Orders for February. The US Census Bureau reported that orders for Durable Goods rose by 1.4% against expectations of 1.3%.

The Census Bureau said an increase in primary metals, transportation equipment, and machinery drove higher fresh durable goods orders. Higher spending in factories indicates a revival of the manufacturing sector, which has remained a main laggard due to the Federal Reserve’s hefty rate hikes in more than two years.

This week, investors will keenly focus on the US core Personal Consumption Expenditure price index (PCE) data for February, which will be published on Friday. Fed’s preferred inflation measure will provide fresh cues about when the central bank will start reducing interest rates.

Meanwhile, the Canadian Dollar could face selling pressure as Bank of Canada (BoC) Senior Deputy Governor Carolyn Rogers has depicted vulnerable economic prospects. BoC Rogers warned about Canada’s low productivity due to a lack of investment, competition, and the inability of new Canadians to use their skills.

Carolyn Rogers also warned that the current inflation situation could be a bigger threat than it has been over the past few decades.