USD/CAD breaks its winning streak that began on July 17, trading around 1.3810 during the Asian session on Friday. The pair retreated from an eight-month high of 1.3849, a level recorded on Thursday. This downside of the USD/CAD pair is attributed to the weakening of the US Dollar (USD) ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index for June.

However, the US Dollar may limit its downside as stronger US economic data have reduced some rate cut expectations for September. On Thursday, the US Gross Domestic Product (GDP) for the second quarter (Q2) was stronger than expected. This follows Wednesday’s US PMI data, which indicated a faster expansion in private-sector activity for July, highlighting the resilience of US growth despite elevated interest rates.

The US GDP grew at an annualized rate of 2.8%, adjusted for seasonality and inflation, up from the previous reading of 1.4% and surpassing forecasts of 2%. Additionally, the Composite PMI rose to 55.0 from the previous 54.8 reading, marking the highest reading since April 2022 and indicating sustained growth over the past 18 months.

On the CAD front, the Bank of Canada (BoC) to continue to ease policy after its latest interest rate cut on Wednesday. The BoC lowered interest rates by 25 basis points to 4.5% for the second consecutive meeting on Wednesday, citing progress in reducing inflation.

BoC members emphasized that excess supply and a cooling labor market justified their decision to cut rates, aiming to stabilize consumer prices at 2% by 2025. Financial markets expect one more 25 bps rate cut this year, with nearly 60% odds that the BoC will cut rates again in its September meeting. This may limit the upside of the Canadian Dollar (CAD), underpinning the USD/CAD pair.

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