USD/CAD weakens below 1.3550, eyes on BoC rate decision

• USD/CAD edges lower to near 1.3545 in Wednesday's early Asian session.
• US ISM Manufacturing PMI came in at 47.2 in August vs. 46.8 prior, missing the estimation.
• The BoC is likely to cut rate at its September meeting on Wednesday.

The USD/CAD pair trades on a weaker note around 1.3545 during the early Asian session on Wednesday. The weaker-than-expected US ISM Purchasing Managers Index (PMI) drags the Greenback lower. The Bank of Canada (BoC) interest rate decision will be the highlight later on Wednesday, with a 25 basis points (bps) rate cut expected. 

The business activity in the US manufacturing sector continued to contract, albeit at a softer pace in August. The US ISM Manufacturing PMI rose from an eight-month low in July at 46.8 to 47.2 in August. This figure was below the market consensus of 47.5 and register the lowest reading since November.

The cautious mood ahead of the highly-anticipated US August Nonfarm Payrolls on Friday might provide some support to the US Dollar (USD) and cap the pair's downside. This event will be closely watched as it might offer some hints about how much the US Federal Reserve (Fed) will cut interest rates. Financial markets have priced in around a 62% chance of a 25 basis points (bps) rate cut by the Fed in September, while the odds of a 50 bps reduction stand at 38%, according to the CME FedWatch tool. 

On the Loonie front, the BoC is widely expected to deliver a third consecutive interest rate cut on Wednesday amid easing inflationary pressure in the Canadian economy. Investors see the Canadian central bank to lower its benchmark interest rate by a quarter percentage point to 4.25% followed by several more reductions over this year and 2025. "The Bank of Canada is likely to interpret (last week's GDP) data as supportive of maintaining its easing bias, with three more quarter-point cuts expected by year-end." noted Maria Solovieva, TD.

Meanwhile, the further decline in crude oil prices continues to undermine the commodity-linked Canadian Dollar (CAD). It's worth noting that Canada is the largest oil exporter to the United States (US), and lower crude oil prices tend to have a negative impact on the CAD value.