USD/CAD remains subdued near 1.3750 due to rising Oil prices, weaker US Dollar

• USD/CAD struggles as the commodity-linked CAD receives support from improved Oil prices.
• The BoC is expected to deliver a 25-basis-point rate cut on Wednesday.
• The US Dollar faces challenges as traders expect the Fed to lower rates by 25 basis points in September.

USD/CAD continues to lose ground after registering nearly 0.5% losses in the previous session, trading around 1.3770 during the Asian hours on Tuesday. The pair depreciates as the commodity-linked Canadian Dollar (CAD) could have received support from the improved Oil prices. WTI price received support after a potential supply disruption from Russia following Ukrainian drone attacks on its energy infrastructure and mounting US pressure on buyers of Russian crude.

Markets are pricing in a 25-basis-point rate cut by the Bank of Canada (BoC) on Wednesday. Expectations for BoC easing have increased after data showed a loss of roughly 65,500 jobs in August and a rise in the unemployment rate to 7.1%. Traders will likely observe Canada's Consumer Price Index (CPI) data due on Tuesday, which could influence the central bank's policy outlook.

The US Dollar (USD) depreciates against its peers as traders expect the US Federal Reserve (Fed) to lower rates by 25 basis points at its September meeting due on Wednesday. However, there remains a slight chance of a 50-basis-point cut, with markets factoring in continued easing through 2026 to help stave off a potential recession.

Traders will also likely observe the Fed's Summary of Economic Projections (SEP), the 'dot plot,' where each member of the Federal Open Market Committee (FOMC) expects the federal funds rate in the near future.

Markets are broadly expecting the Fed to deliver three straight 25 basis-point interest rate cuts through the end of the year. Morgan Stanley and Deutsche Bank now expect the US central bank to deliver three rate cuts this year, after recent data pointed to easing inflation pressures. Both brokerage firms projected on Friday a 25-basis-point rate reduction at each of the Fed's remaining meetings in September, October, and December, according to Reuters.