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IPC Index — Mexico Market
- USD/CAD attracts some buyers amid a goodish USD recovery from the lowest level since June 17.
- Escalating US-Iran tensions keep inflation risks and Fed hike bets in play, supporting the Greenback.
- Supply concerns act as a tailwind for oil prices, underpinning the Loonie and capping spot prices.
The USD/CAD pair edges higher during the Asian session on Friday and, for now, seems to have snapped a three-day losing streak to the lowest level since June 17, touched the previous day. Spot prices currently trade above the 1.4000 psychological mark, though the intraday uptick lacks bullish conviction.
As investors look past Thursday’s unimpressive US macro data, the US Dollar (USD) regains some positive traction amid prospects for at least one interest rate hike by the US Federal Reserve (Fed) and offers some support to the USD/CAD pair. The Advance US GDP report showed moderating economic growth in the second quarter, while the US Personal Consumption Expenditures (PCE) Price Index pointed to signs of cooling inflation, tempering hawkish Fed expectations.
However, volatile crude oil prices suggest that inflation remains a concern, which could force the US central bank to adopt a more hawkish stance. Adding to this, escalating US-Iran tensions and the risk of a broader regional conflict in the Middle East act as a tailwind for the safe-haven USD. In the latest development, the US military announced it had completed a heavy wave of strikes against Iranian targets, in response to Tehran’s missile attacks on American forces earlier this week.
Meanwhile, Iran rejected Oman’s proposal, which would see Tehran partially control the Strait of Hormuz and collect voluntary fees for using the waterway. Furthermore, On the other hand, repeated attacks by Yemen’s Houthi militias in the Bab al-Mandab Strait, the Red Sea, and the Gulf of Aden add to concerns about disruptions to global energy supplies. This, in turn, could lend support to crude oil prices and underpin the commodity-linked Loonie, warranting some caution for USD/CAD bulls.
