The USD/CAD currency pair experienced buying interest around the 1.3340 level during the previous London session, with the Canadian Dollar showing a rebound near 1.3360. This occurred despite a strong recovery in oil prices and growing expectations of an additional interest rate hike from the Bank of Canada (BoC).
During the European session, S&P500 futures held modest losses, reflecting a cautious market sentiment. Investor confidence has become uncertain, as they anticipate that the Federal Reserve (Fed) will continue its policy-tightening measures.
Fed Chair Jerome Powell recently mentioned that the prospect of further interest rate hikes is less certain due to tight credit conditions at regional banks in the United States, which are acting as a barrier to fully revealing the true extent of inflation.
Since the start of Thursday, the US Dollar Index (DXY) has consistently declined. Overall, the USD Index has shown fluctuating movements across a wide range, lacking a significant catalyst this week. Investors are now preparing for the release of the US Consumer Price Index (CPI) data for May, scheduled for Tuesday.
Despite the surprise rate hike announcement by the Bank of Canada (BoC), the Canadian Dollar is struggling to gain dominance over the US Dollar. BoC Governor Tiff Macklem unexpectedly raised interest rates by 25 basis points (bps) to 4.75%.
This decision was driven by the strength of the Canadian economy, supported by a robust labor market and consumer spending. The current monetary policy is considered insufficiently restrictive to control persistent inflation.
The BoC has left the possibility open for further interest rate hikes if inflation remains stubborn.
Meanwhile, the price of oil has reached a three-day high at $73.20, thanks to various state-run banks in China reducing their lending rates to support economic recovery. It is important to note that Canada is the primary exporter of oil to the United States, and higher oil prices bolster the Canadian Dollar.
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