- USD/CAD is looking to capitalize on a two-day recovery trend that has been going on for three weeks.
- The uncertainty regarding Fed interest rate cuts limits the dollar’s advantage and has a negative impact on this pair
- The decline in oil prices weakens the Loonie and provides some support for the major.
USD/CAD is trading between moderate gains/minor losses during the Asian session on Thursday and for now seems to have halted its nice bounce from the 1.3620-1.3615 region, a three-week low reached on Tuesday. Spot prices are currently trading near the 1.3700 level, almost unchanged on the day as traders now await the release of US macroeconomic data before placing up-to-date directional bets.
Market attention will remain focused on Friday’s US Personal Consumption Expenditures (PCE) price index, which is seen as the Federal Reserve’s (Fed) preferred measure of inflation. This will play a key role in influencing market expectations regarding future Fed policy decisions, which in turn will drive demand for the US dollar (USD) and provide a significant boost to the USD/CAD pair. Meanwhile, Thursday’s U.S. economic report – which includes the final Q1 GDP print, sturdy goods orders, the usual weekly preliminary jobless claims data and pending home sales – will be scrutinized for near-term trade opportunities.
Ahead of key releases, uncertainty about the likely timing of the Fed’s interest rate cut cycle is not helping the US dollar take advantage of the previous day’s gains to the highest level since early May. Meanwhile, the Canadian dollar (CAD) continues to enjoy support from reduced bets on a July interest rate cut by the Bank of Canada (BoC), especially after data released on Tuesday showed a rise in domestic consumer inflation in May. This, in turn, appears to be limiting the upside of the USD/CAD pair, although the decline in oil prices is weakening the commodity-linked Loonie and acting as a tailwind.
The Energy Information Administration (EIA) reported an unexpected jump in U.S. inventories on Wednesday, fueling concerns about faint demand from the world’s largest oil consumer and negatively affecting the black liquid. That said, concerns about potential supply disruptions in Russia and the Middle East should assist limit deeper oil price losses. Therefore, it would be prudent to wait for further forceful buying before entering into a position for further short-term appreciation movement in the USD/CAD pair.
Economic indicator
Personal consumption expenditure – price index (y/y)
Personal Consumption Expenditures (PCE), published monthly by the U.S. Bureau of Economic Analysis, measure changes in the prices of goods and services purchased by consumers in the United States (US). A year-on-year reading compares prices in a reference month with prices from the previous year. Price changes may cause consumers to switch from purchasing one good to another, and the PCE deflator may take such substitutions into account. This makes it the preferred inflation rate for the Federal Reserve. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.
