USD/CAD slips below 1.3550 on expected BoC rate cuts and weak US jobs

• USD/CAD slips below 1.3550 as BoC cuts interest rates by 25bps to 4.25% as expected.
• US dollar corrects sharply after weak US JOLTS Job Openings data for July.
• Investors await US NFP for August for further guidance on interest rates.

USD/CAD falls sharply below the crucial 1.3550 support as the Bank of Canada (BoC) cuts its key lending rates by 25 basis points (bps) for the third time in a row, pushing them to 4.25% .

The BoC was expected to cut interest rates, which did not cause the Canadian dollar (CAD) to weaken further. Investors were anticipating a dovish decision on interest rates as inflationary pressures in the Canadian economy eased significantly. The economy also needs a liquidity boost to lift the weakened growth outlook.

Meanwhile, the US dollar (USD) is falling on weak United States (US) JOLTS jobs data for July. The report showed job vacancies were much lower at 7.673 million than estimates of 8.1 million than the previous release of 7.91 million, revised down from 8.184 million. Weak job posting data escalated downside risks for the US labor market. The US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is falling below 101.40.

On Tuesday, the US dollar corrected after the release of unfavorable United States (US) ISM manufacturing PMI for August, which raised expectations that the Federal Reserve (Fed) could aggressively start the policy easing process, which is expected this month .

The ISM agency reported that manufacturing activity contracted at a faster pace than projected, with the PMI landing at 47.2 from estimates of 47.5.

According to the CME FedWatch tool, the probability of a 50 basis point (bps) rate cut in September is 39%, while the rest favor a 25 basis point cut to 5.00%-5.25% , indicating that interest cuts this month were fully priced by traders.

This week, the main trigger for the US dollar will be US Non-Farm Payrolls (NFP) data for August due out on Friday. Investors will pay close attention to official labor market data as the Fed is now more concerned with preventing job losses.