USD/CAD holds ground above 1.3500 ahead of US employment data

• USD/CAD inches higher as traders adopt caution ahead of US Initial Jobless Claims and ISM Services PMI.
• The US Dollar received support from the improved US Treasury yields.
• BoC reduced interest rates by 25 basis points to 4.25% at September's meeting held on Wednesday.

USD/CAD retraces its recent losses, trading around 1.3510 during the Asian hours on Thursday. The US Dollar (USD) remains solid as traders adopt caution ahead of the release of US ISM Services PMI and Initial Jobless Claims scheduled to be released later in the North American session.

Attention will shift to Friday's US Nonfarm Payrolls (NFP) to gain more cues on the potential size of an expected rate cut by the Federal Reserve (Fed) this month.

The US Dollar Index (DXY), which measures the value of the US Dollar against six other major currencies, trades around 101.30. The Greenback receives support from improving 2-year and 10-year yields on US Treasury bonds standing at 3.76% and 3.75, respectively, at the time of writing.

However, the US Dollar faced challenges after the release of July's US JOLTS Job Openings, which fell short of expectations and indicated a further slowdown in the labor market. The number of job openings dropped to 7.673 million in July, down from 7.910 million in June. This marked the lowest level since January 2021 and was below the market expectation of 8.10 million.

On Wednesday, the Bank of Canada (BoC) lowered its benchmark interest rate by 25 basis points (bps) to 4.25%, as expected, at September's meeting held on Wednesday. BoC Governor Tiff Macklem commented, "If inflation continues to ease broadly in line with our July forecast, further cuts to our policy rate are likely."

Governor Macklem also noted that a 25 basis points (bps) reduction seemed appropriate and observed that the divergence with the US Federal Reserve on rates has not significantly affected the exchange rate.