The USD/CAD pair experienced fresh buying activity on Thursday, maintaining its positive stance during the first half of the European session. It managed to recover a significant portion of the previous day’s modest losses.
Currently trading within the range of 1.3470-1.3475, the pair has seen a minor increase of less than 0.15% for the day. Various factors are influencing its performance.
The US Dollar (USD) has been on an upward trajectory, marking its third consecutive day of gains and its fifth positive session in the past six days. It has reached a new high not seen since March 24, bolstering support for the USD/CAD pair.
The recent optimistic comments from multiple Federal Reserve (Fed) officials have sparked speculation that the US central bank will maintain higher interest rates for an extended period.
This, coupled with positive expectations regarding the US debt ceiling, has contributed to elevated US Treasury bond yields and consequently strengthened the USD.
There has been a notable commitment from US President Joe Biden and top congressional Republican Kevin McCarthy to strike a deal soon in order to raise the government’s $31.4 trillion debt ceiling.
This development has alleviated concerns of a potential unprecedented default on American debt, instilling confidence among investors. As a result, equity markets have generally responded positively, which may limit the appeal of the safe-haven US Dollar.
Furthermore, the rise in Crude Oil prices overnight has supported the commodity-linked Canadian Dollar (CAD) and restrained the upside potential of the USD/CAD pair.
A significant drop in US gasoline inventories has indicated an improvement in demand, leading to substantial gains in oil prices, with an increase of over $2 on Wednesday. Nevertheless, worries persist regarding a global economic slowdown, particularly in China, which could impact fuel consumption.
This, in turn, acts as a deterrent to oil prices and reinforces the likelihood of further appreciation for the USD/CAD pair. It is worth noting, however, that the failure to sustain a position above the 100-day Simple Moving Average (SMA) overnight warrants caution for bullish traders.
Looking ahead, market participants are now focusing on the upcoming US economic indicators, including the release of Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales during the early North American session.
Additionally, speeches from influential Federal Open Market Committee (FOMC) members will provide valuable insights. The demand for the USD will also be influenced by US bond yields, ongoing debt-limit negotiations, and broader market sentiment.
Furthermore, the dynamics of oil prices will play a role in shaping short-term trading opportunities involving the USD/CAD pair.
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