• On Tuesday, USD/CAD quotations resulted in slight losses near 1.3620.
• Business activity in the U.S. manufacturing sector declined for the second month in a row in May.
• Markets expect the BoC to cut its key interest rate by a quarter of a percentage point on Wednesday.

During Tuesday’s Asian session, the USD/CAD pair remains defensive around 1.3620. The pair’s decline is supported by a weaker US dollar (USD) to Monday’s support level of 104.00. On Wednesday, investors’ attention will focus on the PMI index for the US services sector, ahead of the long-awaited publication of non-farm payrolls (NFP) data.

The Institute for Supply Management (ISM) revealed on Monday that business activity in the manufacturing sector declined for the second month in a row in May. The US manufacturing PMI fell to 48.7 in May from the previous reading of 49.2, below forecasts of 49.6. The weaker-than-expected reading put some selling pressure on the U.S. dollar (USD) and sparked speculation about Fed rate cuts this year.

On Friday, the focus will be on non-farm payrolls (NFP) data in the US, which is estimated to generate 190,000 recent jobs in May. In case of stronger than expected data, this could strengthen the USD.

The Bank of Canada (BoC) is expected to cut its overnight rate by 25 basis points (bps) to 4.75% on Wednesday as Canadian inflation declines in April. CIBC Capital Markets economists predict the BoC could cut interest rates up to three times before the Fed begins easing policy. The interest rate divergence between the BoC and the Fed could drag the Canadian dollar (CAD) down and negatively impact the USD/CAD exchange rate. BoC President Tiff Macklem said a rate cut is possible, but the decision will be dictated by economic data.