- USD/CAD rises for the third day in a row and reaches almost two-week highs.
- Falling oil prices weigh on the CAD and offer support to the pair amid a bullish USD.
- Dovish expectations from the Fed, recovery in US bond yields and a more dovish risk tone benefit the Dollar.
- Investors hope that US macroeconomic data will provide a boost to the pair ahead of Fed Chairman Jerome Powell’s speech.
The USD/CAD pair gains some positive traction for the third day in a row on Thursday and maintains its buying tone near a two-week high during the early part of the European session. The pair is currently hovering around the 1.3730 area, up 0.10% on the day, and continues to be supported by a combination of factors.
Weaker consumer inflation figures released in Canada on Tuesday forced market participants to trim expectations for a further rate hike from the Bank of Canada (BoC). Apart from this, the emergence of some intraday selling around crude oil prices weighs on the CAD, a currency linked to commodity prices. This, along with the bullish trend of the US Dollar (USD), acts as a tailwind for the USD/CAD pair and supports the prospects for further appreciation in the near term.
OPEC+ is reportedly not planning to take immediate action on Iran’s call for Islamic countries to impose an oil embargo and other sanctions on Israel over the war with Hamas in Gaza. On the other hand, the Biden Government on Wednesday eased sanctions on Venezuela’s oil sector so that it produces and exports oil to the markets of its choice during the next six months without limitations. This eases concerns about global supply and weighs on black gold.
In addition, concerns about economic headwinds from rapidly rising borrowing costs, which could dent fuel demand, are putting further pressure on oil prices. That said, geopolitical tensions in the Middle East, along with a larger-than-expected inventory draw in the US – the world’s largest oil consumer – could act as a tailwind for the commodity and help limit any decline. significant in the short term.
The dollar, for its part, continues to receive support from the growing acceptance that the Federal Reserve (Fed) will keep interest rates elevated for longer. These prospects have sparked a sell-off in the US bond market, taking the 10-year government bond yield to a new 16-year high and approaching the psychological level of 5%. This situation, coupled with the risk aversion environment, continues to support the safe haven US dollar.
The mentioned fundamental backdrop seems to be leaning in favor of the USD bulls and suggests that the path of least resistance for the USD/CAD pair is to the upside. Investors, however, could refrain from opening aggressive positions ahead of Fed Chairman Jerome Powell’s speech during the American session. Meanwhile, US macroeconomic data, with the release of weekly initial jobless claims, the Philadelphia Fed manufacturing index and existing home sales data, could provide some support to the pair.
Technical levels to monitor
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
