USD/CAD weakens to near 1.3750 as expectations mount of Fed rate cut

• USD/CAD trades in negative territory near 1.3755 in Thursday's early Asian session. 
• Investors priced in near certainty the Fed would ease rates next month.
• Some BoC members wonder whether the central bank has already cut its rate enough to support the Canadian economy.

The USD/CAD pair extends the decline to around 1.3755 during the early Asian session on Thursday. The US Dollar (USD) softens against the Canadian Dollar (CAD) as investors continue to price in further rate cuts by the US Federal Reserve (Fed). The US Producer Price Index (PPI) report will take center stage later on Thursday, followed by the weekly Initial Jobless Claims.  

The US July Consumer Price Index (CPI) inflation reading increased expectations of a Fed rate reduction at the September meeting, exerting some selling pressure on the Greenback. The US CPI increased marginally in July, the US Bureau of Labor Statistics (BLS) showed Tuesday, in line with forecasts. The annual core CPI climbed by 3.1% in July, versus the 2.9% rise prior, and beat the estimates of 3.0%.  

Fed funds futures traders are now pricing in nearly a 94% chance of a 25 basis point (bps) cut at the September meeting, up from 85% odds before the inflation data release, according to the CME's FedWatch tool. 

Additionally, the concerns over the Fed's independence might contribute to the USD's downside. Reuters reported on Tuesday that White House spokeswoman Karoline Leavitt said that US President Donald Trump was considering a lawsuit against Fed Chair Jerome Powell due to his management of renovations at the central bank's Washington headquarters.

The Bank of Canada (BoC) on Wednesday released the summary of deliberations from the September meetings leading up to its decision to hold the policy rate steady at 2.75%. Some BoC members were wondering last month whether the central bank's benchmark interest rate is already low enough to support the Canadian economy through US tariffs.

BoC policymakers said in deliberations that the impact of US tariffs on inflation "appeared to be modest so far," but those effects were just beginning to show up in the data. However, the BoC will get a fresh look at inflation figures for July and August ahead of its September 17 interest rate decision.

Meanwhile, a decline in crude oil prices might weigh on the commodity-linked Loonie and help limit the pair's losses. It's worth noting that Canada is the largest oil exporter to the US, and lower crude oil prices tend to have a negative impact on the CAD value.