The USD/CAD pair witnessed a mild uptick on the first day of the week, breaking a two-day losing streak and reaching its highest level since September 2022. However, the bullish sentiment remains limited.
In early European trading, spot prices regained some ground and hovered just above the 1.3200 level, marking a meager increase of less than 0.10% for the day.
Concerns over a potential global economic downturn, particularly in China, have led to renewed selling pressure on crude oil prices. This downward pressure on oil has, in turn, undermined the commodity-linked Canadian Dollar (CAD).
Additionally, the modest strength of the US Dollar (USD), supported by the Federal Reserve’s (Fed) hawkish outlook, has provided further support for the USD/CAD pair.
Last week, the US central bank decided to keep interest rates unchanged but signaled a possibility of up to a 50 basis point increase by the end of the year. The overall softer risk sentiment in the market has also favored the safe-haven appeal of the USD.
However, recent US macroeconomic data has raised concerns about the extent to which the Federal Reserve can continue to raise rates, fueling speculation that the central bank’s tightening cycle may be approaching its end. Consequently, this has restrained the bullish momentum for the USD.
Moreover, the surprise 25 basis point rate hike by the Bank of Canada (BoC) earlier this month continues to lend support to the Canadian Dollar (CAD), thereby limiting the gains for the USD/CAD pair.
As a result, it would be wise to wait for more robust buying activity to confirm if spot prices have indeed bottomed out before considering fresh bullish positions.
Looking ahead, there are no significant economic releases scheduled for Monday, leaving the USD/CAD pair susceptible to fluctuations in USD/Oil price dynamics, particularly with relatively thin trading volumes due to a bank holiday in the US.
However, market attention will remain focused on the two-day congressional testimony by Fed Chair Jerome Powell on Wednesday and Thursday. Investors will be seeking fresh insights into the future path of interest rate hikes, which will shape USD demand and potentially provide a new driving force for the major currency pair.
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