USD/CAD maintains position near 1.3950 ahead of US PCE inflation data

• USD/CAD hovers near the four-month high of 1.3949, reached on Thursday.
• The US Dollar receives support as strong economic data may slow the Fed's interest rate cuts.
• Canada has finalized its first Indo-Pacific trade deal under Prime Minister Mark Carney, aiming to reduce reliance on the US.

USD/CAD remains stronger for the fifth consecutive day, trading around 1.3940 during the Asian hours on Friday. The pair holds ground near the four-month high of 1.3949, which was recorded on Thursday, after the stronger-than-expected economic data from the United States (US). Focus shifts toward Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve's preferred inflation gauge, due later on Friday.

Robust economic data may prompt the US Federal Reserve (Fed) to adopt a more cautious approach to cutting interest rates. The US Gross Domestic Product (GDP) Annualized grew 3.8% in the second quarter (Q2), coming in above the previous estimate and the estimation of 3.3%. Meanwhile, the GDP Price Index rose 2.1% in the same period, as compared to the expected and previous 2.0% growth. US Initial Jobless Claims declined to 218K last week, the lowest since July. The market expectations were an increase to 235K from 232K previously.

Fed Bank of Kansas City President Jeffrey Schmid said on Thursday that the Fed is currently close to meeting its mandates, but added that policy must be forward-looking. Schmid added that the rate cut was appropriate to offset risks to the labor market, though inflation is still too high and the current job market is largely in balance, per Reuters. However, Chicago Fed President Austan Goolsbee noted that he was not eager to do a lot more policy easing while inflation is above target and moving the wrong way.

Canadian Trade Minister Maninder Sidhu said on Thursday that Canada has signed its first Indo-Pacific trade deal under Prime Minister Mark Carney, as part of efforts to reduce reliance on the United States (US). "I see a lot of opportunities in agriculture, in energy and telecom, in defense and aerospace," Sidhu added.