USD/CAD rises to near 1.3550 as traders assess ISM Manufacturing PMI

• USD/CAD gains ground as the Fed is expected to deliver a less aggressive rate cut in September.
• Traders await the US ISM Manufacturing PMI on Tuesday ahead of upcoming US employment data.
• The downside of the commodity-linked CAD would be limited due to higher Oil prices.

USD/CAD extends its gains for the second consecutive day, trading around 1.3520 during the early European hours on Tuesday. This upside of the USD/CAD pair is attributed to the improved US Dollar (USD) amid decreasing odds of an aggressive interest rate cut by the US Federal Reserve rate in September.

Additionally, US Treasury yields continue to rise and provide support for the US Dollar, but its gains may be limited by growing expectations of a quarter-basis point rate cut by the Fed in September. According to the CME FedWatch Tool, markets are nearly 70% confident of at least a 25 basis point (bps) rate cut by the Fed at its September meeting.

However, the decline in the commodity-linked CAD is expected to be limited by rising crude Oil prices. West Texas Intermediate (WTI) Oil has climbed to near $73.60 per barrel at the time of writing, supported by concerns over potential supply disruptions in Libya. Oil exports from key ports were suspended on Monday, and production has been scaled back nationwide, according to six engineers quoted by Reuters.

The Bank of Canada's interest rate decision on Wednesday will be closely monitored. It is widely anticipated that the BoC will reduce interest rates for the third consecutive time during its September meeting. Investors expect the Canadian central bank to lower its benchmark rate by a quarter percentage point to 4.25%, with additional cuts likely throughout the remainder of the year and into 2025.