USD/CAD steady near 1.3750 as traders await US PCE inflation and Canada GDP

• USD/CAD steadies near 1.3750, pausing a three-day losing streak ahead of key data.
• The US Dollar Index stabilizes around 98.00, although Fed rate cut bets continue to put pressure on the Greenback.
• Canada's Q2 GDP expected to show -0.6% annualized contraction, reversing Q1's 2.2% growth.

The USD/CAD is virtually unchanged on Friday, trading flat after pausing a three-day losing streak as traders turn cautious ahead of the US Personal Consumption Expenditures (PCE) inflation report and Canada's Gross Domestic Product (GDP), both scheduled for release at 12:30 GMT.

At the time of writing, the pair is hovering near 1.3750 in the European session, after briefly slipping to 1.3737, its lowest level since August 8, as a modest rebound in the US Dollar (USD) capped further upside for the Canadian Dollar.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is stabilizing after a three-day slide. The index is holding near the 98.00 psychological mark as traders reposition ahead of key US economic data. That said, the Greenback remains broadly under pressure amid growing concerns over Federal Reserve (Fed) independence and expectations of a dovish monetary policy outlook, with markets largely anticipating a 25 basis point (bps) interest rate cut in September. July's PCE inflation data will be pivotal in providing a clearer picture of the Fed's policy path.

On the domestic front, Canada's GDP release will be closely watched for a fresh direction in the Loonie. Economists expect June GDP to grow 0.1%, following a 0.1% contraction in May, though overall second-quarter growth is projected to be broadly stagnant. The annualized pace is expected to shrink by 0.6%, a steep reversal from the 2.2% growth recorded in Q1. The slowdown is largely attributed to a sharp drop in exports following the imposition of tariffs, which has weighed on external demand and business investment.

The weaker growth outlook reinforces expectations for additional Bank of Canada (BoC) easing. At its July 30 meeting, the central bank held its policy rate steady at 2.75%, but flagged that if economic slack continues to drag on inflation while tariff-driven price pressures remain contained, a rate reduction could be warranted. Money markets are already fully pricing in a 25 bps cut to 2.50% by year-end, limiting upside for the Canadian Dollar, even as Oil prices and broader risk sentiment provide some short-term support.

Across the border, attention will be firmly on the US core PCE Price Index, the Fed's preferred inflation gauge. Markets expect core PCE to rise 0.3% MoM in July, matching June's pace, while the annual rate is seen edging up to 2.9% from 2.8% previously. Headline PCE inflation is projected to hold steady at 2.6% YoY.

A softer print would reinforce expectations for a September rate cut, weighing further on the Greenback, while a stronger outcome could challenge the dovish narrative and provide a short-term lift to USD/CAD. Along with PCE, traders will also watch US income and spending figures for signs of consumer strength, which remains key to supporting economic growth.