During early Asian trading on Tuesday, the USD/CAD pair advances below the mid-1.3500s, supported by a strengthening US dollar and higher US Treasury bond yields. Currently hovering near 1.3540, the pair shows a slight uptick of 0.03% for the day. Market focus turns to the January Canadian Ivey Purchasing Managers Index (PMI), anticipated to dip from 56.3 in December to 55.0 in January.

Federal Reserve Chair Jerome Powell’s remarks on Sunday affirm the central bank’s trajectory for three interest rate cuts this year, with the first expected as early as May. The probability of a March rate cut diminishes to 15%, down from 38% according to the CME FedWatch tool. The prospect of prolonged higher rates in the US could bolster the greenback, providing support for the USD/CAD pair.

Investors anticipate the Bank of Canada (BoC) to commence cutting its benchmark interest rate from a 22-year high of 5% in April, as indicated by a central bank survey released on Monday. By the end of 2024, median forecasts for the policy rate are projected to decline to 4%, consistent with previous expectations from November.

The Loonie faces downward pressure amid declining oil prices, given Canada’s status as the largest oil exporter to the United States. Market attention shifts to Canadian building permits for December and Ivey PMI data later on Tuesday, followed by Friday’s release of Canadian labor market data, including the Unemployment Rate.

Trade Idea:

With the US dollar gaining strength and expectations of a rate cut from the Bank of Canada, consider buying the USD/CAD pair on dips, targeting resistance levels near 1.3600. Watch for potential market reactions to upcoming Canadian economic data for trading opportunities.