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- USD./CAD struggles to gain any meaningful traction amid a combination of diverging forces.
- The USD recovers a part of the post-FOMC losses and acts as a tailwind for the currency pair.
- Supply worries support oil prices, underpinning the Loonie and capping gains for spot prices.
The USD/CAD pair is seen consolidating below mid-1.4000s during the Asian session on Thursday, though it remains close to an over one-week trough touched the previous day. However, a mixed fundamental backdrop warrants some caution before placing directional bets as the focus shifts to important US macro releases.
Thursday’s US economic docket features the Advance Q2 GDP report and the Personal Consumption Expenditures (PCE) Price Index. The data will be looked for more cues about the US Federal Reserve’s (Fed) policy path, which, in turn, will play a key role in influencing the US Dollar (USD) and provide some meaningful impetus to the USD/CAD pair. Apart from this, oil price dynamics should contribute to producing short-term trading opportunities.
In the meantime, the growing acceptance that the US central bank will hike interest rates by the end of this year amid inflation risks stemming from volatile oil prices supports the USD. Adding to this, escalating US-Iran tensions help the safe-haven buck to recover a part of the previous day’s post-FOMC decline to an over one-week low. This, in turn, is seen acting as a tailwind for the USD/CAD pair and warrants some caution for aggressive bearish traders.
The US central bank refrained from adopting a more hawkish stance at the end of a two-day policy meeting on Wednesday. That said, three members voted for a 25 basis points (bps) rate hike amid concern that inflation remains stubbornly above the Fed’s 2% target. Moreover, the CME Group’s FedWatch Tool indicates that traders have nearly priced in at least one interest rate hike by the end of this year, which favors USD bulls and supports the USD/CAD pair.
Meanwhile, US President Donald Trump said that he will order heavy strikes on Iran in retaliation for its “surprise attack” on US forces on Tuesday. Adding to this, the US-Iran standoff over the Strait of Hormuz and Yemen’s Iran-backed Houthi attacks in the Red Sea fuel concerns about significant disruptions to global energy supplies. This acts as a tailwind for crude oil prices, which could benefit the commodity-linked Loonie and cap the USD/CAD pair.
