USD/CAD remains subdued 1.3800 ahead of US economic data

• USD/CAD loses ground as the US Dollar struggles amid the rising likelihood of a Fed rate cut in September.
• US July Retail Sales data and the preliminary Michigan Consumer Sentiment Index will be eyed on Friday.
• The BoC could opt for a rate cut if economic conditions weaken and trade-driven inflation pressures ease.

USD/CAD retraces its recent gains registered in the previous session, trading around 1.3800 during the early European hours on Friday. The pair depreciates as the US Dollar (USD) declines amid rising odds of the Federal Reserve (Fed) reducing interest rates in September. CME's FedWatch tool indicates that Fed funds futures traders are now pricing in nearly a 93% chance of a 25 basis point (bps) interest rate cut at the September meeting.

However, the USD/CAD registered nearly 0.5% gains in the previous session as the Greenback advanced amid stronger US economic data. Traders await the US July Retail Sales data and the preliminary Michigan Consumer Sentiment Index due later in the North American session.

The US Producer Price Index (PPI) climbed 3.3% YoY in July, against the previous increase of 2.4% and the expected 2.5% rise. The annual core PPI climbed 3.7% in July, compared to 2.6% in June and the 2.9% expected. US Initial Jobless Claims for the week ending August 8 fell to 224K versus 227K prior (revised from 226K). This figure was below the market consensus of 228K.

The USD/CAD pair may further appreciate as the Canadian Dollar (CAD) could face challenges as the Bank of Canada's (BoC) Minutes for the July meeting indicated fresh concerns. BoC policymakers emphasized a shorter-term decision horizon amid elevated uncertainty, noting that a rate cut may be warranted if economic conditions deteriorate and trade-driven inflation pressures subside.