USD/CAD slips to 1-month low, holds just above mid-1.3600s amid weaker USD

• USD/CAD is down for the second day in a row amid the prevailing USD selling trend.
• Dovish Fed expectations, along with a positive risk tone, continue to weigh on the money.
• A modest drop in oil prices could undercut the Loonie and help limit deeper losses.

The USD/CAD pair is extending last week’s breakout momentum through the 50-day simple moving average (SMA) and remains under some selling pressure for the second day in a row on Monday. The downward trajectory drags spot prices to a more than one-month low around the 1.3665-1.3660 area during the Asian session and is sponsored by bearish sentiment around the US dollar (USD).

The USD index (DXY), which tracks the greenback against a basket of currencies, is falling closer to its January low hit earlier this month amid bets that the Federal Reserve (Fed) will begin its rate-cutting cycle installments in September. Expectations were bolstered by remarks from San Francisco Fed President Mary Daly, who said the US central bank must take a gradual approach to reducing borrowing costs. That overshadowed the fact that the University of Michigan’s preliminary index of US consumer sentiment improved for the first time in four months and rose to 67.8 in August.

Apart from this, a generally positive tone around equity markets is proving to be another factor weighing on demand for the haven dollar, which in turn is seen to put pressure on the USD/CAD pair. The continued decline could still be attributed to some technical selling after last week’s breakdown and subsequent rejection near the pivotal support of the 50-day SMA turned resistance. That said, a softer tone around crude oil prices could undermine the commodity-linked Loonie and prevent traders from placing new bear bets ahead of this week’s data risk/central bank event.

The latest Canadian consumer inflation figures are due out on Tuesday, to be followed by the FOMC meeting minutes on Wednesday. Apart from that, investors will closely scrutinize Fed Chairman Jerome Powell’s speech at the Jackson Hole Symposium for fresh clues about the central bank’s policy path. This, in turn, will play a key role in influencing USD price dynamics in the short term. In addition, geopolitical developments in the Middle East, which tend to drive crude oil prices, should provide a boost to the USD/CAD pair and determine the next step of a directional move.