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• USD/CAD softens to around 1.3800 in Tuesday’s early Asian session.
• Investors are now pricing in a slight chance of an outsized September Fed cut. 
• The US PPI and CPI inflation reports will be in the spotlight later this week. 

The USD/CAD pair trades in negative territory near 1.3800 during the early Asian session on Tuesday. Investors continued to assess the latest US Nonfarm Payrolls (NFP) report, while expectations of extra rate cuts by the Federal Reserve (Fed) keep the Greenback under scrutiny. Traders await key US inflation data, which is due later this week. 

Friday’s NFP report showed US job growth fell in August, and the Unemployment Rate ticked higher to nearly a four-year high of 4.3%. These figures reinforced expectations that the US central bank will resume cutting interest rates at a policy meeting later this month and weigh on the US Dollar (USD) against the Canadian Dollar (CAD). Fed funds futures are currently pricing in nearly a 90% odds of a 25 basis points (bps) cut this month and a 10% chance of a 50 bps rate reduction, according to LSEG estimates.

Traders will take my cues from the US Producer Price Index (PPI) and Consumer Price Index (CPI) data, which will be released on Wednesday and Thursday, respectively. "We feel there's a chance for a surprise uptick in the dollar, especially if the inflationary figures to arrive in the form of PPI (producer price index) and CPI (consumer price index) paint a picture in which prices are just simply getting out of control," said Juan Perez, director of trading at Monex USA in Washington.

Meanwhile, a rise in crude oil prices might support the commodity-linked Loonie and create a headwind for the pair. It’s worth noting that Canada is the largest oil exporter to the US, and higher crude oil prices tend to have a positive impact on the CAD value.

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