USD/CAD falls to near 1.3800 due to prevailing dovish sentiment surrounding Fed outlook

• USD/CAD depreciates as traders expect the Fed to deliver a rate cut in September.
• US economic figures support the dovish tone surrounding the Fed policy outlook.
• BoC's trimmed mean inflation held at 3% in June, reducing urgency to accelerate rate cuts.

USD/CAD loses ground after two days of gains, trading around 1.3800 during the Asian hours on Monday. The pair depreciates as the US Dollar (USD) could face further challenges amid the prevailing dovish tone surrounding the US Federal Reserve's (Fed) policy outlook for September.

Recent US economic data support the case for a Federal Reserve (Fed) rate cut in September. The preliminary Michigan Consumer Sentiment Index fell to 58.6 in August from 61.7 in July, falling short of the expected 62.0 reading. Meanwhile, the US Retail Sales grew by 0.5% month-over-month in July, as expected, against a rise of 0.9% seen in June. Retail Sales Control Group rose by 0.5%, compared to the 0.8% increase prior.

However, traders adopt caution as Trump administration has broadened its 50% tariffs on steel and aluminum imports, including 407 new product codes in the US Harmonized Tariff Schedule. US President Donald Trump also told reporters he intends to issue further announcements on steel tariffs, along with new levies aimed at semiconductor imports.

Canada's inflation is cooler but not "mission accomplished" as the Bank of Canada's (BoC) preferred inflation gauge, the trimmed mean, stuck at an elevated 3% in June, giving the central bank little incentive to speed up rate cuts. The BoC reduced the policy rate to 2.75% in July but vowed to proceed cautiously amid persistent service-price stickiness and the need to weigh opposing forces from tariffs and softening demand.