• USD/CAD pair falls on dovish comments from Federal Reserve officials.
• Mary Daly, president of the Federal Reserve in San Francisco, emphasized that the US central bank should cut interest rates gradually.
• The rise in the commodity-linked CAD may be postponed on lower oil prices.

USD/CAD is paring recent gains from the previous two sessions, trading around 1.3670 in Monday’s European hours. The decline is being attributed to a lukewarm US dollar (USD) following dovish comments from Federal Reserve (Fed) officials regarding their policy stance. This has raised the chances of a rate cut by the central bank in September and undermined the USD/CAD pair.

Federal Reserve Bank of San Francisco President Mary Daly stressed Sunday that the U.S. central bank should gradually lower borrowing costs, according to the Financial Times. Daly dismissed economists’ concerns that the U.S. economy is on the verge of a piercing slowdown that would justify quick rate cuts.

Federal Reserve Bank of Chicago President Austan Goolsbee warned that central bank officials should be cautious about keeping policy tight longer than necessary. While it is unclear whether the Fed will cut interest rates next month, failure to do so could hurt the job market, according to CNBC.

However, the USD/CAD pair’s decline may be restricted as the commodity-linked Canadian dollar (CAD) may struggle due to lower WTI prices. Given that Canada is the largest exporter of crude oil to the United States (US).

The price of West Texas Intermediate (WTI) crude oil is down to nearly $75.00 per barrel at the time of writing. The drop in oil prices is being driven by concerns about weaker demand from China, the world’s largest oil importer. However, escalating geopolitical tensions related to the Israel-Hamas and Russia-Ukraine conflicts could raise supply concerns, potentially limiting further declines in oil prices.

Hamas issued a statement rejecting the terms of a hostage-release deal and ceasefire discussed in Doha on Thursday and Friday, according to Reuters, citing local news agency Times of Israel. In addition, fears of escalating tensions between Ukraine and Russia have intensified as Ukraine launched its largest invasion of Russia since World War II.

Traders are likely to focus on Canadian Consumer Price Index (CPI) data for July on Tuesday, with market expectations pointing to a 2.5% year-over-year rise, down from the previous 2.7% gain. Meanwhile, the monthly index is expected to rise 0.3%, ranging from the previous 0.1% decline.