- USD/CAD gains traction for the second day in a row and is supported by a combination of factors.
- Bearish oil prices weaken the CAD and offer support for the pair amid the appearance of fresh buying around the USD.
- Traders now await the release of Canada’s first quarter GDP and US macro data for further impetus.
He USD/CAD extends the previous day’s bounce from the 1.3565 zone, a multi-day low, and gains some continuation traction for the second day in a row on Wednesday. The pair maintains its buying tone during the first part of the European session and is currently trading near the upper end of its daily range, around the 1.3645 region.
A combination of factors helps the US dollar (USD) attract new buyers, which in turn acts as a tailwind for USD/CAD. Investors seem convinced that the Federal Reserve (Fed) will keep interest rates higher for longer and have been pricing in a higher probability of another 25 basis point hike at the June FOMC policy meeting. These expectations were bolstered by US Personal Consumption Expenditure (PCE) Price Index data on Friday, which showed that inflation remains stubbornly high. This, coupled with the risk aversion momentum, further benefits the safe-haven USD.
Market sentiment remains fragile amid concerns about slowing economic growth, especially in China. The National Bureau of Statistics (NBS) reported Wednesday that Chinese factory activity contracted faster than expected in May. In addition, activity in China’s service sector expanded at the slowest pace in four months. This, along with concern for the worsening US-China relationscasts a shadow over optimism about raising the US debt ceiling and dampens investor appetite for riskier assets.
Meanwhile, the irregular economic recovery of the world’s second largest economy raises fears for fuel demand from China, the main oil importer. This, in turn, drags crude oil prices to a nearly four-week low, weighing on the commodity-priced CAD and providing additional momentum to the USD/CAD pair.
The pair is trading near the monthly high reached last week, as traders wait for major macroeconomic releases from Canada and the US to gain significant momentum.
Wednesday’s economic agenda includes the publication of the Canadian GDP for the first quarter, along with data from Chicago PMI and US JOLTS job openings later in the American session. Apart from this, speeches by influential FOMC members and risk sentiment in general will drive demand for the USD. Traders will follow the movement in oil prices to take advantage of some short-term opportunities around the USD/CAD pair. However, the aforementioned fundamental undercurrent favors the pair’s bulls.
USD/CAD technical levels to watch
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.
