CFD Trading Rate US Dollar vs Canadian Dollar (USDCAD)

• USD/CAD remains on the defensive around 1.3655 on Friday amid the weaker USD. 
• US GDP number expanded by 1.6% on an annualized basis in Q1 2024, compared to 3.4% growth in Q4 2023.
• The weaker Canadian Retail Sales data triggered speculation that the BoC might start cutting interest rates in June. 

The USD/CAD pair extends its downside near 1.3655 on Friday during the early Asian session. The decline of the US Dollar (USD) to the two-week lows around the mid-105.00s exerts some selling pressure on the pair. Investors now shift their focus to the release of US Personal Consumption Expenditures (PCE) Price Index data, due later on Friday. 

The US economy grew at its slowest pace in nearly two years in the first quarter (Q1) of 2024 as prices rose at a faster pace, the Commerce Department revealed on Thursday. The first estimate of US Gross Domestic Product (GDP) grew by 1.6% on an annualized basis in the January-March period, compared to a 3.4% growth in Q4 2023. This reading came in below the market consensus of 2.5%. Additionally, US Personal Consumption Expenditures Prices rose at an annualized rate of 3.4% in Q1, nearly double the 1.8% pace recorded in Q4 2023. 

The weaker-than-expected GDP growth and hotter-than-expected inflation weigh on the Greenback and create a headwind for USD/CAD. The markets expect the US Federal Reserve (Fed) to begin the first rate cuts in September, with traders now pointing to just one rate cut in 2024 following the GDP data, according to the CME FedWatch tool.

On the Loonie front, the weaker Canadian Retail Sales data on Wednesday triggered speculation that the Bank of Canada (BoC) might start cutting interest rates at its next meeting in June, which might drag the Canadian Dollar (CAD) lower. Nonetheless, the rebound of crude oil prices provides some support to the CAD, as Canada is the largest crude oil exporter to the United States (US). 

• USD/CAD loses ground due to improving risk appetite.
• The US Dollar depreciates following the subdued US Treasury yields.
• The lower Canadian Retail Sales figures have fueled speculation that the BoC might opt to reduce interest rates in June.

USD/CAD pares its recent gains registered in the previous session, trading around 1.3670 during the European hours on Thursday. The improving risk appetite weakens the US Dollar (USD), undermining the USD/CAD pair.

The US Dollar Index (DXY), which measures the US Dollar (USD) against six major currencies, edging lower to near 105.60, down by 0.23%, by the press time on Thursday. The decline in the US Treasury yields, following mixed manufacturing data from the United States (US), put pressure on the Greenback.

According to the US Department of Commerce's report on Wednesday, US Durable Goods Orders surged by 2.6% month-over-month (MoM) in March, surpassing the previous reading of 0.7% and beating the estimated 2.5%. This marked the largest monthly increase in durable goods orders since last November, driven primarily by strong demand for transport equipment. Meanwhile, core goods, excluding transportation, only increased by 0.2% MoM, falling short of the expected 0.3%.

On Thursday, the preliminary Gross Domestic Product Annualized (Q1) data for the United States (US) is scheduled to be released, with expectations of a slowdown in the growth rate. These GDP figures will provide insights into the strength of the US economy and could potentially influence future actions by the Federal Reserve (Fed).

The Canadian Dollar (CAD) struggled after lower-than-expected Retail Sales data was released on Wednesday. This has sparked speculation that the Bank of Canada (BoC) may consider cutting interest rates at its next meeting in June. This sentiment may weigh on the Loonie Dollar (CAD).

• USD/CAD holds positive ground near 1.3705 on Thursday. 
• US Durable Goods Orders rose by 2.6% MoM in March from the previous reading of a 0.7% increase.
• Canada’s February Retail Sales data supports the outlook for the BoC rate cut as soon as June. 

The USD/CAD pair extends its recovery around 1.3705 during the early Asian trading hours on Thursday. The weaker-than-expected Canada’s Retail Sales weigh on the Canadian Dollar (USD). Later on Thursday, investors will closely monitor the US preliminary Gross Domestic Product (GDP) Annualized, which is projected to grow 2.5% in Q1. 

Investors anticipate that the US Federal Reserve (Fed) will lower its Fed Funds Rate in September 2024, with a chance of nearly 70%, according to the CME FedWatch Tool. Last week, the Fed policymaker stated that the central bank’s current restrictive policy is appropriate and that the Fed wouldn’t cut rates until the end of the year. The higher-for-longer US rate narrative provides some support for the Greenback against the CAD. 

About the data, the US Census Bureau showed on Wednesday that Durable Goods Orders in the United States rose by 2.6% MoM in March from the previous reading of a 0.7% increase. Excluding transportation, Durable Goods Orders gained by 0.2% MoM, below the market consensus of 0.3%

On the Loonie front, the recent Canadian Retail Sales data has triggered speculation that the Bank of Canada (BoC) might cut interest rates at its next meeting in June. Retail Sales in Canada decreased 0.1% MoM in February, worse than the estimation of a 0.1% increase. Excluding autos, Retail Sales fell 0.3% MoM in the same period, compared to the forecast of 0.0%. Additionally, the decline in crude oil prices exerts some selling pressure on the commodity-linked Loonie, as Canada is the largest crude oil exporter to the United States (US). 

• USD/CAD recovers to near 1.3700 as the Canadian Retail Sales surprisingly contracted by 0.1% in March.
• Weak Retail Sales data would prompt expectations of early rate cuts by the BoC.
• The US Dollar struggles for a strong recovers due to weak S&P Global PMI report for April.

The USD/CAD pair witnesses strong buying interest and rises to 1.3700 as the Statistics Canada has posted weaker-than-expected Retail Sales data for March. Sales at retail stores contracted at a slower pace of 0.1% against 0.3% in February. However, investors forecasted that Retail Sales will rose by 0.1%.

The Retail Sales is a leading indicator of consumer spending that signifies households’ demand. Lower Retail Sales suggest weak demand by households, which force factory owners to reduce prices of goods and services at their factory gates. This leads to a decline in the consumer price inflation, which would allow the Bank of Canada (BoC) to start reducing interest rates earlier. Currently, financial markets anticipate that the BoC will start reducing interest rates from the June meeting.

Meanwhile, the US Dollar struggles to recover above the immediate resistance of 105.80. It seems that investors have not shrugged off the impact of weak S&P Global preliminary PMI report for April, released on Tuesday.

The S&P PMI report showed that the Manufacturing PMI drops below the 50.0 threshold and the Services PMI falls sharply to 50.9.

Going forward, the US Dollar will dance to the tunes of the Q1 Gross Domestic Product (GDP) and the core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published on Thursday and Friday. The economic data will impact speculation for timing of rate cuts by the Federal Reserve (Fed), which are currently expected from the September meeting.

• USD/CAD rebounds from a two-week low and draws support from a combination of factors.
• Weaker Oil prices undermine the Loonie and act as a tailwind amid renewed USD buying.
• Traders look forward to important US macro releases before placing fresh directional bets.

The USD/CAD pair attracts some buyers in the vicinity of mid-1.3600s, or a two-week low touched earlier this Wednesday and for now, seems to have snapped a five-day losing streak. Spot prices stick to modest intraday gains through the first half of the European session and currently trade near the 1.3675-1.3680 region or the top end of the daily range.

Crude Oil prices struggle to capitalize on the previous day's goodish rebound from the 50-day Simple Moving Average (SMA) support amid easing geopolitical tensions and concerns about slowing economic growth in China. This, along with expectations that the Bank of Canada (BoC) will cut interest rates in the summer amid declining inflation and slower economic growth, is seen undermining the commodity-linked Loonie and acting as a tailwind for the USD/CAD pair amid the emergence of some US Dollar (USD) dip-buying.

Investors now seem convinced that the Federal Reserve (Fed) is unlikely to begin cutting interest rates before September and have also scaled back their expectations about the number of rate cuts in 2024 to two amid still sticky inflation. The hawkish outlook, meanwhile, remains supportive of elevated US Treasury bond yields and helps revive the USD demand. That said, a generally positive risk tone might hold back traders from placing fresh bullish bets around the safe-haven buck and act as a headwind for the USD/CAD pair.

Investors might also prefer to wait on the sidelines ahead of this week's important US macro data, starting with Durable Goods Orders later during the North American session. Apart from this, the Advance US Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index on Thursday and Friday, respectively, might provide fresh cues about the Fed's rate cut path. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the USD/CAD pair.

• USD/CAD faces challenges due to improved risk sentiment, driven by easing geopolitical tensions in the Middle East.
• The US Dollar lost ground after the release of downbeat US PMI data released on Tuesday.
• The Canadian Dollar receives support from the uptick in crude Oil prices.

USD/CAD continues its losing streak that began on April 17, trading around 1.3660 during the Asian session on Wednesday. The pair receives downward pressure due to the downbeat US Dollar (USD), which could be attributed to the disappointing Purchasing Managers Index (PMI) data from the United States (US) released on Tuesday.

In April, the preliminary S&P Global Composite PMI for the US declined to 50.9 from the previous reading of 52.1. Additionally, the Manufacturing PMI fell to 49.9 from 51.9 in the previous reading, below the estimated 52.0. Similarly, the Services PMI decreased to 50.9, compared to the prior 51.7, falling short of the expected 52.0.

In Canada, the uptick in crude Oil prices contributes upward support to the Canadian Dollar (CAD), given the fact that Canada is the largest crude Oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price trades around $83.20 per barrel, by the press time.

Crude Oil prices have advanced following industry data indicating an unexpected decrease in US crude stocks last week, signaling positive demand dynamics. Attention has shifted away from tensions in the Middle East. The American Petroleum Institute (API) reported a 3.23 million barrels decline in weekly crude Oil stocks for the week ending April 19, contrary to the expected increase of 1.80 million barrels and the previous week's increase of 4.09 million barrels.

Canadian Industrial Product Price Index rose by 0.8% in March, in line with expectations and slightly lower than the previous month's upwardly revised figure of 1.1%. Additionally, the New Housing Price Index remained unchanged in March, against forecasts of a 0.1% increase, with the year-over-year NHPI declining by 0.4%. Investors will keep an eye on Canadian Retail Sales data due on Wednesday.

• USD/CAD struggles to hold the 1.3700 support as the US Dollar edges down.
• US bond yields consolidate as investors focus on US core PCE Price Index data.
• BoC’s rate cut prospects remain strong as Canada’s inflation softens significantly in March.

The USD/CAD pair remains feeble near the round-level support of 1.3700 in Tuesday’s European session. The Loonie asset comes under pressure as the US Dollar drops amid improvement in the risk appetite of the market participants.

S&P 500 futures have posted some gains in the London session. The appeal for risky assets improves as investors see no further escalation in Middle East conflict on an immediate basis. 10-year US Treasury yields consolidate around 4.63% as investors shift focus to the United States core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published on Friday. The US Dollar Index (DXY) edges down to 105.96.

The underlying inflation data will significantly influence market expectations to Federal Reserve (Fed) rate cuts, which traders anticipate from the September meeting. The annual core PCE Price Index is forecasted to have softened to 2.6% from 2.8% in February with monthly inflation increasing steadily by 0.3%.

Meanwhile, the Canadian Dollar has consistently performed better against the US Dollar since the last trading sessions. The Canadian Dollar could weaken as investors see the Bank of Canada (BoC) starting to reduce interest rates earlier amid easing price pressures. BoC’s preferred inflation measure that excludes eight volatile items softened to 2% in March, allowing policymakers to discuss rate cuts.

USD/CAD faced sharp selling pressure last week after a rally stalled near 1.3850. The asset rallied after a breakout of the Ascending Triangle chart pattern formed on a daily timeframe. The 20-day Exponential Moving Average (EMA) near 1.3674 will be a major support area for the US Dollar bulls.

The 14-period Relative Strength Index (RSI) returns to the 40.00-60.00 range, which indicates that bullish momentum has concluded for now while the upside bias is still intact.

Going forward, a mean-reversion move to near the 20-day EMA around 1.3674 will offer a buying opportunity to market participants. Investors would find resistance near the 22 November 2023, high at 1.3766, followed by the round-level resistance of 1.3800.

In an alternate scenario, a breakdown below April 9 low around 1.3547 will expose the asset to the psychological support of 1.3500 and March 21 low around 1.3456.

USD/CAD daily chart

• USD/CAD trades in negative territory for the fifth consecutive day around 1.3695 on Tuesday. 
• The high-for-longer US rate narrative might boost the USD and cap the pair’s downside. 
• Canadian Industrial Produce Prices dropped by 0.8% MoM in March compared to a rise of 1.1% prior, in line with the consensus. 

The USD/CAD pair extends its downside near 1.3695 despite lower crude oil prices. However, the downside of the pair might be capped by strong US economic data and the Fed’s hawkish comments. Investors will keep an eye on the US S&P Global Purchasing Managers Index (PMI) ahead of US Gross Domestic Product (GDP) and US Core Personal Consumption Expenditures (PCE) later this week. 

Many Fed policymakers agreed with the idea of keeping borrowing costs at the current level, given the slow and bumpy progress on inflation and the robust US economy. New York Fed President John Williams said he doesn't feel urgency to cut interest rates, given the strength of the economy. Chicago Fed Austan Goolsbee stated that the Fed's current restrictive monetary policy is appropriate due to the robust US economic data. The high-for-longer rate narrative in the USD might lift the greenback against its rivals. The Core US PCE might offer some hints about the further confirmation that progress against inflation has stalled.

On the Loonie front, data released from Statistics Canada revealed that Canadian Industrial Produce Prices were in line with market expectations, easing by 0.8% MoM in March from the previous month’s 1.1% (revised upward from 0.7%). Meanwhile, the decline of WTI prices exerts some selling pressure as Canada is the largest oil exporter to the United States. Canada’s Retail Sales will be released on Thursday, which is estimated to improve to 0.1% MoM in February from a decrease of 0.3% in January. 

• USD/CAD drops further to 1.3720 as the Canadian Dollar holds strength despite weak Oil prices.
• This week, the US Core PCE Price Index and Q1 GDP data will guide the US Dollar.
• USD/CAD corrects after a sharp rally, driven by an Ascending Triangle breakout.

The USD/CAD pair continues its losing streak for the fourth trading session on Monday. The Loonie asset drops to 1.3720 as investors have underpinned the Canadian Dollar against the US Dollar despite multiple headwinds.

The Canadian Dollar holds strength even though the Oil price plummets below $81.00. The appeal of the Oil price weakens as geopolitical risks ease after Friday's event in the Middle East indicated that Iran was downplaying Israel's limited retaliatory attack. Lower Oil prices generally dent demand for the Canadian Dollar, as Canada is the leading exporter of Oil to the United States.

Also, the soft Canadian inflation outlook fails to dampen the Canadian Dollar outlook. Bank of Canada’s (BoC) preferred inflation measure that excludes eight volatile items annually ease to 2% in March, prompting expectations of early rate cuts.

Meanwhile, the US Dollar consolidates above 106.00 as investors shift focus to the preliminary Q1 Gross Domestic Product (GDP) and the core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published on Thursday and Friday, respectively.

USD/CAD delivered a sharp rally after a breakout of the Ascending Triangle chart pattern formed on a daily timeframe. The near-term outlook remains strong as the 20- and 50-day Exponential Moving Averages (EMAs), which trades around 1.3680 and 1.3600, respectively, are moving higher.

The 14-period Relative Strength drops to near 60.00 but still holds inside the bullish range of 60.00-80.00.

As a mild correction is generally followed by a sharp rally after a breakout, a mean-reversion move to near the 20-day EMA around 1.3680 will present a buying opportunity to market participants. Investors would find resistance near the 22 November 2023, high at 1.3766, followed by the round-level resistance of 1.3800.

In an alternate scenario, a breakdown below April 9 low around 1.3547 will expose the asset to the psychological support of 1.3500 and March 21 low around 1.3456.

USD/CAD daily chart

• USD/CAD faces challenges due to the weaker US Dollar despite higher US Treasury yields.
• The decline in WTI prices, attributed to de-escalated geopolitical tensions in the Middle East, restrains the upward momentum of the Canadian Dollar.
• The downside potential for the US Dollar may be limited as remarks from Fed officials indicate a hawkish stance on monetary policy tightening.

USD/CAD continues its decline for the fourth consecutive session, hovering around 1.3720 during Asian trading hours on Monday. This downward movement may be attributed to the subdued performance of the US Dollar (USD) despite the rise in US Treasury yields. However, the downside potential for the USD/CAD pair could be limited due to comments from Federal Reserve (Fed) officials hinting at a shift towards a more hawkish stance.

However, the Canadian Dollar's (CAD) gains may face limitations due to lower crude Oil prices, considering Canada's status as the largest oil exporter to the United States (US). West Texas Intermediate (WTI), the US crude Oil benchmark, trades around $81.50, reflecting a 0.66% decline on Monday, by the press time.

According to the Reuters report, the Iranian authorities have downplayed rumors regarding a drone attack by Israel. With no imminent threat of escalation in the conflict, the immediate risk aversion has gradually subsided, putting pressure on the USD/CAD pair.

Furthermore, data from Canada indicates a softening inflationary trend, underscoring the divergent monetary policy outlook between the Bank of Canada (BoC) and the US Federal Reserve (Fed). While interest rates in Canada are anticipated to decrease in the summer amid declining inflation and slower growth, the situation is increasingly different in the United States (US).

From the Federal Reserve’s officials, Chicago Fed President Austan Goolsbee remarked on Friday that progress on inflation had "stalled," and the Federal Reserve's current restrictive monetary policy is appropriate. Meanwhile, Atlanta Fed President Raphael Bostic stated that the US central bank would refrain from cutting interest rates until the end of the year.

• USD/CAD avoids the worst excesses of volatility in markets from the reported retaliation of Israel against Iran.
• The flight to safety boosted the US Dollar but the Canadian Dollar benefited equally from surging Oil prices. 
• Interest rate differentials remain a bullish factor for the pair as the Fed delays expected interest rate cuts.  

USD/CAD is trading in the 1.3750s after edging lower on Friday. The pair has been shielded by the worst excesses of volatility witnessed in markets brought on by the escalating geopolitical situation in the Middle East. 

The surge in risk aversion after reports of Israel’s retaliatory attacks on Iran have supported the safe-haven US Dollar (USD) along with the other usual suspects: Gold, JPY, CHF. 

Yet the impact on USD/CAD was muted due to the Middle East conflict’s impact on Oil, and the Canadian Dollar’s sensitivity to Oil prices. 

WTI Crude Oil prices rose over 4.0% from $81.80 to $85.50 following the news of Israel’s purported attack on Iran. This strengthened CAD because Oil is the country’s primary export. 

Beyond the Israeli-Iran conflict, however, other factors are also expected to drive up the price of Oil, according to some analysts. 

One factor is the US’s increasingly long list of Oil producing countries who are potential targets for sanctions. 

“Less Oil from Iran and Venezuela is likely to reach the market in the coming months, as the US intends to tighten Oil sanctions against Iran and reinstate the Oil sanctions against Venezuela that have been eased in the meantime,” says Commerzbank in a recent note. 

Commerzbank sees other bullish factors for Crude in the form of continued OPEC+ supply constraints and increased broad demand for gasoline due to the likelihood that the European Central Bank (ECB) and Federal Reserve (Fed) will start cutting interest rates before the end of the year. 

From the perspective of Oil, the outlook favors the CAD side of the USD/CAD pair, and is therefore a bearish factor for USD/CAD.  

Diverging outlook on interest rates could support USD/CAD

USD/CAD remains in a short and medium-term uptrend despite the negative spillover effect from Oil prices.

The reason for this is the diverging outlook on the future path of interest rates in the US and Canada. Interest rates are a key FX driver because global capital tends to flow to where interest rates are higher all other things being equal. 

This has supported the US Dollar most recently during its early April rally and provided a bullish backwind for USD/CAD. 

Interest rates in Canada are expected to fall in the summer amid declining inflation and slower growth but the reverse is increasingly the case in the US. 

In the US stronger macroeconomic data, persistently high inflation and a tight labor market are seen as factors likely to keep interest rates comparatively higher for longer. 

From expecting three 0.25% rate cuts in 2024 at the start of the year when inflation was tracking lower, the Federal Reserve is now indicating it may only cut twice or perhaps once. Some Federal Reserve officials are even signaling that the central bank should keep interest rates at their present level until more evidence of inflation coming down is available. 

Market based indicators of the number of rate cuts have also changed radically with odds now showing the most likely month for the Fed to implement a first rate cut is September, when previously expectations had been zeroed in on June. 

The situation in Canada is very different. There, inflation is still tracking lower and the probability of the Bank of Canada (BoC) cutting interest rates by 0.25% in June stands at 70%, according to analysts at Brown Brothers Harriman. 

Indeed, on Tuesday, BoC governor Tiff Macklem stated, “there’s some downward momentum in underlying inflation.” 

Canadian Consumer Price Index (CPI) data backs this up. Whilst headline inflation crept higher in March – to 2.9% from 2.8% it remains below the BoC's 3.0% target. In addition, the main drivers were rising gasoline prices and the rising US mortgage rates used by many Canadian property owners, according to Tradingeconomics.com. 

Both the core-trim and core-median measures of the Consumer Price Index (CPI), however, showed signs of easing – to 3.1% (the lowest since June 2021) and 2.8% (matching the July 2021 low), respectively – according to BBH. 

• USD/CAD surrenders some of its intraday gains as Iranian media denies any foreign attack on its cities.
• The higher WTI price provides support for the Canadian Dollar.
• The Greenback gained traction after Fed officials conveyed hawkish messages on Thursday.

USD/CAD pares its intraday gains, trading around 1.3780 during the Asian session on Friday. However, the pair received upward support as the safe-haven US Dollar (USD) gained traction following news of Israeli missiles striking a site in Iran, exacerbating tensions in the Middle East. However, Iranian media has refuted reports of a foreign attack on Iranian cities, including Isfahan.

According to Reuters, citing Iran’s Fars News Agency, locals reported hearing explosions at the central Isfahan airport. However, the cause of these explosions remains unknown.

The Canadian Dollar receives some support from the higher crude Oil prices, given the fact that Canada is the largest Oil exporter to the United States (US). Western Texas Intermediate (WTI), the US crude oil benchmark, trades around $83.80, by the press time. The prices of crude Oil appreciated as US officials confirmed that Israeli missiles had hit a site in Iran.

On the US Dollar's front, Federal Reserve (Fed) officials conveyed hawkish messages on Thursday, leading to a surge in US Treasury yields and the US Dollar, consequently, underpinning the USD/CAD pair.

Traders are expected to closely monitor Atlanta Fed President Raphael Bostic, who will speak regarding the US economic outlook at the University of Miami, Florida. Additionally, Chicago Fed President Austan Goolsbee will participate in a moderated Q&A session at the Association for Business Journalists 2024 SABEW Annual Conference in Chicago.

• USD/CAD has pulled back after rallying strongly at the start of April. 
• US-Dollar strength drove the pair higher on the back of shifting monetary policy expectations.
• The Canadian Dollar weakened on the back of falling Oil prices, expected cuts to interest rates. 

USD/CAD is trading in the 1.3750s on Thursday, down roughly a tenth of a percent on the day as it continues to backtrack after the strong rally at the beginning of April. 

April’s up move was driven mostly by the US Dollar taking off on a blend of higher-than-expected US inflation data, strong jobs data and uber-hawkish comments from the Chairman of the Federal Reserve (Fed) Jerome Powell. 

In a speech on Tuesday Powell further stated he thought it would take more time to reach the Fed’s inflation target of 2%. “Given the strength of the labor market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us,” he said. 

Expectations that interest rates in the US would be cut in June have now been almost totally scrapped in favor of September. Since higher interest rates attract greater inflows of foreign capital the delay has supported the Greenback. 

The Canadian Dollar, meanwhile, has weakened on increasing expectations that the Bank of Canada (BoC) will cut interest rates in June. The markets are now pricing in a 70% probability of such a move, according to analysts at Brown Brothers Harriman (BBH). 

Bank of Canada (BoC) Governor Tiff Macklem highlighted a declining trend in Canadian inflation on Tuesday which supports the thesis that the BoC is getting ready to cut interest rates. 

Macklem said, “there’s some downward momentum in underlying inflation,” and the data seems to back this view up with both core-trim and core-median measures of the Consumer Price Index (CPI) easing to 3.1% (the lowest since June 2021) and 2.8% (matching the July 2021 low), respectively, according to BBH.  

Further, a bout of weakness in Oil prices has also weighed on CAD, since Oil is the country’s largest export. WTI Crude Oil has fallen 10% in April, from a peak of $87 a barrel on April 5 to $79 on April 18.

• USD/CAD loses ground due to the subdued US Dollar on Thursday.
• Lower US Treasury yields put pressure on the Greenback.
• The decline in the WTI price may limit the advance of the Canadian Dollar.

USD/CAD extends its losses for the second consecutive session on Thursday, trading around 1.3750 during the Asian session. The pair follows the retreat from the five-month high of 1.3846 reached on Tuesday.

Meanwhile, the US Dollar Index (DXY) loses ground, primarily influenced by subdued US Treasury yields. DXY falls to near 105.90 with the 2-year and 10-year yields on US Treasury bonds stand at 4.92% and 4.57%, respectively, by the press time. This decline in the US Dollar exerts pressure on the USD/CAD pair.

The US Dollar faced challenges after the neutral remarks from the Federal Reserve’s (Fed) official. Fed Governor Michelle Bowman remarked on Wednesday that progress in inflation is slowing, with a potential stall. Bowman also noted that monetary policy is currently restrictive, and its adequacy will be evaluated over time.

Furthermore, Federal Reserve Bank of Cleveland President Loretta Mester acknowledged that inflation has exceeded expectations. She emphasized that the Fed needs more assurance before confirming the sustainability of 2% inflation.

On the flip side, the downward trend in crude Oil prices might constrain the Canadian Dollar's (CAD) upward momentum, considering Canada's status as the largest Oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price dips to nearly $82.30 per barrel at the time of writing. Market concerns persist regarding demand for this year, particularly in light of indications suggesting the potential avoidance of a broader conflict in the Middle East.

The advance of the Canadian Dollar could be short-lived due to the dovish sentiment surrounding the Bank of Canada (BoC), which could mitigate losses in the USD/CAD pair. There are expectations for a 25 basis points (bps) rate cut from the BoC in June. This sentiment is reinforced by the mixed Canadian inflation data released on Tuesday.

• USD/CAD slumps to 1.3800 even though the US Dollar exhibits strength.
• Investors see the BoC choosing the June meeting as their earliest point for pivoting to rate cuts.
• Oil prices weaken as Fed Powell’s hawkish guidance raises doubts over global economic outlook.

The USD/CAD pair dipped to round-level support of 1.3800 in Wednesday’s early American session. The Loonie asset faces pressure despite multiple tailwinds, such as higher Bank of Canada (BoC) rate cut hopes, a sharp decline in the Oil price, and hawkish guidance from Federal Reserve (Fed) Chair Jerome Powell.

The S&P 500 opens on a positive note, suggesting an improvement in the risk appetite of the market participants. 10-year US Treasury yields edge down to 4.64% but are still close to a five-month high as Fed Powell supported the argument of keeping interest rates higher for a longer period.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, turns sideways above 106.00.

Traders are pricing in a rate cut by the BoC in the June meeting as inflation remains on course towards the required rate of 2%. The BoC’s preferred inflation measure, the Core Consumer Price Index (CPI), which excludes eight volatile items, softened to 2.0% from the prior reading of 2.1%.

Last week, BoC Governor Tiff Macklem acknowledged that a rate cut in June is possible if inflation continues to decelerate sustainably after keeping interest rates unchanged at 5%.

Meanwhile, West Texas Intermediate (WTI), futures on NYMEX, have dropped to $84.00 as the dismal global economic outlook outweighs tight supply fears. Higher prospects for the Fed maintaining the monetary policy framework for a longer period weigh on the Oil price. Investors fear the global oil supply remaining tight amid deepening Middle East tensions.

• USD/CAD pulls back from the high level of 1.3846, which has not been seen since mid-November.
• The US Dollar may strengthen further on the likelihood of the Fed extending its tight monetary policy.
• The lower WTI price could limit the advance of the Canadian Dollar.

USD/CAD retreats from a five-month high of 1.3846 reached on Tuesday. The pair trades around 1.3800 during the European hours on Wednesday. The minor decline in the US Dollar (USD) adds to the downward pressure on the USD/CAD pair.

However, the US Dollar Index (DXY) remains close to its five-month peak of 106.51 achieved on Tuesday. At the time of writing, the 2-year and 10-year yields on US Treasury bonds stand at 4.94% and 4.63%, respectively.

The hawkish remarks from the Federal Reserve Chair Jerome Powell, could have supported the US Dollar (USD). According to Reuters, Powell remarked that recent data suggests minimal advancement in inflation this year, implying a prolonged period before reaching the 2% target.

The lower crude Oil prices weaken the Canadian Dollar (CAD), given that Canada is the largest oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price dips to nearly $84.40 per barrel, at the time of writing.

The concerns over Oil supply stemming from heightened tensions in the Middle East have been overshadowed by worries about global demand. Sluggish economic growth in China and the anticipated rise in US commercial stockpiles have heightened concerns regarding the global demand for crude Oil

The Canadian inflation data has provided support for the Bank of Canada (BoC) to contemplate easing borrowing conditions in its upcoming June meeting. Particularly, the closely monitored core inflation indicator exhibited signs of sustained moderation, which may influence the BoC's decision-making regarding monetary policy adjustments.

Consumer Price Index (CPI) rose by 0.6% MoM, lower than the expected 0.7% in March but higher than the previous increase of 0.3%. Meanwhile, Core CPI (YoY) increased by 2.0% at a slower pace compared to the previous rise of 2.1%.

• USD/CAD retreats from a five-month high of 1.3846 reached on Tuesday.
• The decline in crude Oil prices might have contributed to undermining the Canadian Dollar.
• Fed Chair Powell highlighted that recent data indicates the timeframe for achieving the 2% inflation target will be longer than initially anticipated.

USD/CAD snaps its five-day winning streak, trading around 1.3820 during the Asian session on Wednesday. The mild correction in the US Dollar (USD) contributes to downward pressure on the USD/CAD pair. However, the weaker crude Oil prices could put pressure on the Canadian Dollar (CAD), consequently, limiting the losses of the pair.

The latest Canadian inflation figures provided support for the Bank of Canada (BoC) to consider easing borrowing conditions in its June meeting, as the closely monitored core inflation showed signs of sustained easing.

Consumer Price Index (CPI) increased by 0.6% month-over-month, slightly below the expected 0.7% in March but higher than the previous increase of 0.3%. CPI (YoY) rose by 2.9% against 2.8% prior. Meanwhile, Core CPI (YoY) rose by 2.0% at a slower pace compared to the previous 2.1% rise. The monthly Core index showed an increase of 0.5%, higher than the previous 0.1%.

On the other side, hawkish remarks from Federal Reserve (Fed) officials and the influx of safe-haven flows could bolster the US Dollar (USD) and potentially limit the downside of the USD/CAD pair. The US Dollar Index (DXY) pulls back from a five-month high of 106.51 reached on Tuesday. This decline could be attributed to a slight decline in US Treasury yields.

Federal Reserve (Fed) Chairman Jerome Powell remarked on Tuesday that the US economy has exhibited notable strength. However, Powell also noted that recent data suggests insufficient progress on inflation this year, and achieving the confidence that inflation will reach the 2% target will take "longer than expected." This hawkish stance by Powell might have lent some support to the US Dollar.

• USD/CAD rises to 1.3820 as mixed Canadian inflation report keeps BoC rate cut hopes firm.
• BoC’s preferred inflation gauge softens to 2.0% on a year-on-year basis.
• The US Dollar hovers near a six-month high as the Fed is expected to delay rate cut plans.

The USD/CAD pair jumps to 1.3820 in Tuesday’s early New York session after Statistics Canada reported a mixed Consumer Price Index (CPI) report for March. The agency showed that monthly headline CPI grew by 0.6%, slower from expectations of 0.7% but higher than the prior reading of 0.3%. However, the annual headline inflation data accelerated to 2.9% from the prior reading of 2.8%.

The monthly Bank of Canada (BoC) CPI core data, which excludes eight volatile items, rose sharply by 0.5% compared to a meagre 0.1% growth in February. However, the annual core CPI slowed to 2% from the prior reading of 2.1%.

The return of the BoC’s most preferred inflation measure to a desired rate of 2% is expected to allow the Bank of Canada (BoC) to start reducing interest rates, which are currently expected from the June policy meeting.

Last week, BoC Governor Tiff Macklem said a rate cut in June is possible if inflation continues to decelerate sustainably after the BoC keeps interest rates unchanged at 5%. The BoC has kept interest rates steady at 5% since July 2023 to maintain downward pressure on consumer price inflation.

Meanwhile, significant demand for safe-haven assets due to worsening geopolitical tensions and faded speculation for Federal Reserve (Fed) rate cuts for the June and July policy meetings have built pressure on the Canadian Dollar.

The US Dollar Index (DXY) falls slightly from a five-month high of 106.44. The near-term demand for the US Dollar remains intact as investors see the Fed keeping interest rates higher for a longer period. Inflation remaining higher than expectations for three months in a row suggests that there should be no urgency for rate cuts.

• USD/CAD attracts some buyers for the third straight day and climbs to a fresh YTD peak.
• Reduced Fed rate cut bets, along with geopolitical risks, benefit the USD and lend support.
• An uptick in Oil prices underpins the Loonie and keeps a lid on further gains for the major.

The USD/CAD pair builds on last week's breakout momentum through the 1.3600-1.3610 supply zone and gains some positive traction for the fifth successive day on Tuesday. Spot prices climb to the 1.3815 region, or the highest level since November 14 during the Asian session and remain well supported by the underlying strong bullish sentiment surrounding the US Dollar (USD).

The USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs to over a five-month top in the wake of expectations that the Federal Reserve (Fed) will delay cutting interest rates amid sticky inflation. Adding to this, the upbeat US Retail Sales figures released on Monday indicated that strong consumer spending could underpin inflation and force the Fed to keep interest rates higher for longer. The hawkish outlook, meanwhile, remains supportive of elevated US Treasury bond yields,  which is seen acting as a tailwind for the buck.

Apart from this, a generally weaker tone around the equity markets, amid persistent geopolitical tensions, turns out to be another factor benefitting the safe-haven Greenback and lending support to the USD/CAD pair. Meanwhile, Israel's military chief said that his country would respond to Iran's weekend missile and drone attack, raising the risk of a further escalation of conflicts in the Middle East. This assists Crude Oil prices to build on the overnight bounce from a two-week low, which could underpin the commodity-linked Loonie and cap the major.

Market participants now look to the release of the Canadian consumer inflation figures, due later during the early North American session. Meanwhile, the US economic docket features the release of housing market data and Industrial Production figures. Apart from this, speeches by influential FOMC, including Fed Chair Jerome Powell, and the broader risk sentiment will drive the USD demand. This, along with Oil price dynamics, should provide some meaningful impetus to the USD/CAD pair and allow traders to grab short-term opportunities.