USD/CAD remains subdued near 1.3450 as traders expect more Fed rate cuts in this year

• USD/CAD loses ground due to rising dovish sentiment surrounding the Fed's policy outlook.
• Fed's Bowman urged caution regarding central bank rate cuts, citing inflation indicators above the 2% target.
• The commodity-linked CAD may struggle due to lower crude Oil prices amid investors re-assessing the effectiveness of China's stimulus plans.

USD/CAD hovers around 1.3430 during the early European hours on Wednesday. The pair received downward pressure following the bumper interest rate cut of 50 basis points by the US Federal Reserve (Fed) last week.

The US Dollar (USD) may depreciate further due to expectations for further rate cuts by the Fed in 2024. According to the CME FedWatch Tool, markets are pricing in around 50% likelihood of a 75 basis point reduction, bringing the Fed's rate to a range of 4.0-4.25% by the end of this year.

Additionally, the lower US Treasury yields contribute to downward pressure for the Greenback. The US Dollar Index (DXY), which measures the value of the US Dollar against its six major peers, trading around 100.30 with 2-year and 10-year yields on US Treasury bonds standing at 3.51% and 3.73%, respectively, at the time of writing.

However, Federal Reserve Governor Michelle Bowman stated on Tuesday that key inflation indicators are still "uncomfortably above" the 2% target, urging caution as the Fed moves forward with interest rate cuts. Despite this, she expressed a preference for a more conventional approach, advocating for a quarter percentage point reduction.

The commodity-linked Canadian Dollar (CAD) could weaken as crude Oil prices face headwinds, with investors re-evaluating the effectiveness of China's stimulus plans to significantly boost its economy and fuel demand growth in the world's largest crude importer. West Texas Intermediate (WTI) crude Oil price trades around $71.00 per barrel at the time of writing.

On Tuesday, Bank of Canada (BoC) Governor Tiff Macklem stated that the central bank will closely monitor consumer conditions in Canada, stressing that the timing and pace of future rate cuts will be data-driven. "The timing and pace will be determined by incoming data and our assessment of what those data mean for future inflation," Macklem remarked.