FX168 Financial News Agency (North America): On Wednesday (July 24th), as the US dollar index measuring the US dollar fell slightly due to the mixed performance of the Standard & Poor's PMI data, exchange rate trends and fluctuations in US yields, the market continued to bet on the dovish prospects of the Federal Reserve. Currently, the focus is on the economic growth rate in the second quarter, followed by durable goods orders and the number of initial jobless claims each week. The Bank of Canada once again lowered its interest rate by 25 basis points, which was in line with market expectations. Subsequently, the Canadian dollar against the US dollar fell to a 14-week low. The Bank of Canada further lowered its forecast for Canadian economic growth, putting pressure on the Canadian dollar. The US dollar/Canadian dollar pair surged to the vicinity of the integer resistance level of 1.3800, hitting a three-month high. The Canadian dollar/renminbi fell to its lowest level since mid-April.

As of press time, the US dollar index is reported at 104.36, down 0.08%.

(US dollar index trend chart, Source: FX168)

As signs of deflation gradually appear, market participants’ confidence in the possibility of interest rate cuts in September continues to increase. However, Federal Reserve officials remain cautious and still rely on data. Therefore, people's attention has turned to the upcoming key data, namely core personal consumption expenditures (PCE) and second-quarter gross domestic product (GDP).

The US Purchasing Managers' Index (PMI) data was mixed. Manufacturing activities shrank while the service industry unexpectedly expanded to its highest level since April 2022.

At present, the US private sector continues to expand healthily. The S&P Global PMI rose from 54.8 in June to 55. Correspondingly, the S&P Global Manufacturing PMI fell from 51.6 in June to 49.5, while the Services PMI rose slightly from 55.3 to 56. Chicago Mercantile Exchange (CME) continued to support the possibility of an interest rate cut in September by the Federal Reserve.

The Chicago Mercantile Exchange (CME) Federal Reserve Observation Tool continues to support the possibility of interest rate cuts in September.

Francesco Pesole, foreign exchange strategist at the Dutch Bank, pointed out that the June CPI report softened, resulting in a decline in the US dollar. At present, most US dollar cross-currency pairs have erased losses, and the yen, Swiss franc and pound sterling have become major winners. "From the bottom of the forex scoreboard, we feel that Trump's trade is still playing a role." "This seems more like an adjustment to the risk of Trump's reelection rather than the beginning of a trend that lasts for months. The Fed's comments are still unfavorable to the US dollar and will eventually limit the short-term appreciation of the US dollar. Yesterday, the auction of two-year US Treasury bonds was strong, and the yield hit the lowest level since January. We believe that the Canadian Central Bank's interest rate cut today may further consolidate the Fed's interest rate cut expectations." "The foreign exchange market defaults to domestic news, and currencies that are sensitive to Trump’s trade are difficult to recover in the short term. The low foreign exchange volatility environment is obviously unfavorable to any rotational arbitrage trading. On the contrary, the market seems to be closing out some selected high-yield currencies."

Antje Praefcke, foreign exchange strategist at Deutsche Bank, pointed out that there may still be some volatility in the US dollar before the weekend. "After the latest inflation data for June was unexpectedly lower than expected, the market once again increased its expectations for a Fed interest rate cut. The first interest rate cut in September is now almost fully reflected in the price, and the market believes that there is a high probability of another rate cut by the end of the year. September will be the best time for the first interest rate cut because it can be supported by corresponding forecasts." "Tomorrow's second-quarter growth data will show how resilient the US economy is. The second quarter should be better than the first quarter. The personal consumption expenditure index—the Fed's preferred inflation indicator—will be released on Friday. However, due to the publication of inflation data, there is almost no new information in the index." "If the data confirms the market’s view that there will be a rapid interest rate cut cycle in the coming months, I expect the US dollar to have a slight reaction. However, if the data makes the market doubt the expectations, I expect the US dollar to have a stronger trend. Because the market will have to adjust them, the US dollar may further rise to 1.08."

The US dollar/Canadian dollar returned to a three-month high, and as of press time, it is reported at 1.38068, up 0.19%.

(US dollar/Canadian dollar exchange rate trend chart, Source: FX168)

Canada lowered interest rates again, in line with the Bank of Canada's commitment to a series of interest rate cuts in the second half of 2024. However, Canadian dollar traders are unable to get rid of the drastic downward revision of Canadian gross domestic product (GDP) growth forecasts and first-quarter revisions.

It was unexpected for Canadian dollar traders that the Bank of Canada significantly lowered its growth forecasts. It is currently expected that the Canadian GDP growth rate in 2024 will be 1.2%, while the figure predicted in April was 1.5%, which was already very low. The Bank of Canada also predicts that the economic growth rate in the first quarter of 2024 will only be 1.7%, far lower than the previously predicted 2.8%.

Bank of Canada Governor Macklem said that monetary policy is still tight; the balance sheet has not yet reached normal levels; and they do not want the economy to be too weak and lead to inflation rates below the target of 2%. Against the background of cooled inflationary pressures and deteriorating labor market conditions, it is expected that the Bank of Canada will cut interest rates again in September.

Due to the weak oil price, the attractiveness of the Canadian dollar has weakened. Oil prices have fallen as a result of gloomy Chinese economic prospects, weak oil demand prospects, and relief supply concerns. It is worth noting that Canada is the largest oil exporter to the United States, and weak oil prices put pressure on the Canadian dollar.

As of publication, the Canadian dollar / yuan has fallen to a mid-April low, now reporting 5.2593, a drop of 0.35%.

(CAD/CNY exchange rate trend chart, source: FX168)