USD/CAD trades stronger above 1.3700 on the modest rebound of US Dollar

• USD/CAD gains ground near 1.3710 in Thursday’s early Asian session. 
• The weaker US Retail Sales data fueled Fed rate cut expectations and might cap the Greenback’s upside.
• The BoC policymakers worried about downside risks and the possibility of a widening divergence between Canada and the US.

The USD/CAD pair trades with mild gains around 1.3710, snapping the four-day losing streak during the early Asian trading hours on Thursday. The modest recovery of the US Dollar (USD) might be limited amid reduced bets of the US Federal Reserve (Fed) rate cut this year. 

The softer-than-expected US Retail Sales data for May boosts the expectation that the US Fed will reduce interest rates this year, which might drag the Greenback and Treasury yields lower. The Fed officials maintain the data-dependent approach. Fed Bank of New York President John Williams said on Tuesday that interest rates will come down gradually over time as inflation eases, but he declined to say about the timing that Fed can begin easing monetary policy. Meanwhile, Boston Fed President Susan Collins stated that it is still too early to say whether or not inflation is on course toward the target.

Traders will take more cues from the US weekly Initial Jobless Claims, Building Permits, Housing Starts, the Philly Fed Manufacturing Index, and the speech by the Fed’s Barkin, which are due later on Thursday. The US Initial Jobless Claims are expected to drop 235K from the previous week of 242K. The better-than-expected reading could lift the Greenback and cap the downside for the pair. 

The Bank of Canada’s (BoC) latest Summary of Deliberations on Wednesday stated that the BoC policymaker has worried about downside risks and the possibility of a widening divergence between Canada and the US. The Canadian central bank decided to cut its policy rate to 4.75% from 5% on June 5, the first cut in four years. Investors see at least two more rate cuts before the end of 2023, and priced in nearly 60% odds of a quarter-point rate cut in a July meeting, according to Refinitiv data.