The USD/CAD pair is hovering near the crucial support level of 1.3200 during the European session. Despite the US Dollar’s strength, the Canadian Dollar struggles to find support, as investors anticipate a confirmed interest rate hike from the Federal Reserve (Fed), which is set to be announced on July 26.
In London, S&P500 futures have surged significantly, indicating a reduction in caution among market participants after a volatile Friday. It appears that investors are brushing off risks in anticipation of the Fed’s upcoming interest rate decision.
The US Dollar Index faced some pressure after reaching a new daily high at 101.40, but it is expected to rise further as the Federal Reserve is likely to resume its rate-hike cycle, which was temporarily paused in June.
A 25 basis points (bps) rate hike will push interest rates to 5.25-5.50%, potentially marking the peak of the 17-month-long aggressive interest rate cycle, according to the CME Fedwatch tool.
Meanwhile, the Canadian Dollar has displayed resilience, thanks to oil prices nearing the critical resistance level of $78.00. As global central banks approach their interest rate peak, investors are hopeful that the economic outlook will attract upgrades from institutional investors, with a return to normal oil demand.
Notably, Canada’s position as a leading oil exporter to the United States makes it more responsive to higher oil prices, which would further support the Canadian Dollar.
On the economic front, consumer spending momentum in Canada significantly slowed down in May. Monthly Retail Sales expanded at a rate of 0.2%, falling short of expectations of 0.55 and the previous release of 1.0%.
Retail demand excluding automobiles remained stagnant, contrary to investors’ expectations of a 0.3% expansion. These developments may influence the Bank of Canada (BoC) to maintain its interest rates at the current 5% level in the near future.
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