USD/CAD remains below 1.3600 due to improved risk sentiment

• USD/CAD depreciates due to risk-on mood amid rising odds of a bumper 50 basis points rate cut by the Fed.
• CME FedWatch Tool suggests the likelihood of a 50 basis points Fed rate cut increasing to 59.0%.
• Lower Oil prices might have put downward pressure on the commodity-linked Canadian Dollar.

USD/CAD edges lower to near 1.3580 during the early European hours on Monday as the US Dollar (USD) received downward pressure amid the rising likelihood of the US Federal Reserve opting for an aggressive 50 basis points rate cut at its upcoming monetary policy meeting scheduled for Wednesday.

According to the CME FedWatch Tool, markets anticipate 41.0% odds of a 25 basis point (bps) rate cut by the Fed at its September meeting. The likelihood of a 50 bps rate cut has increased to 59.0%, up from 50.0% a day ago.

Additionally, lower US Treasury yields contribute to the downward pressure for the Greenback. The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trades around 100.70 with 2-year and 10-year yields on US Treasury bonds standing at 3.55% and 3.64%, respectively, at the time of writing.

On the CAD front, lower crude Oil prices might have put downward pressure on the Loonie Dollar and limit the downside of the USD/CAD pair. West Texas Intermediate (WTI) Oil price remains subdued around $68.40 per barrel at the time of writing. Concerns over slowing fuel demand in the world's largest Oil importer resurfaced following a series of disappointing Chinese economic data over the weekend, putting pressure on Oil prices.

Additionally, the Canadian Dollar (CAD) may weaken due to growing expectations of further interest rate cuts by the Bank of Canada (BoC). Traders will likely to monitor Canada's Consumer Price Index (CPI) data for August, scheduled for release on Tuesday. This inflation report could offer fresh insights into the Bank of Canada's outlook ahead of its October policy decision.