The USD/CAD pair has gained momentum for the third straight day, marking the fifth positive move in the previous six days, and has touched a nearly two-week high of around 1.3535 during the first half of the European session on Friday.
Crude oil prices are near their monthly low, which has created worries that a deeper global economic downturn will dent fuel demand, undermining the commodity-linked Canadian Dollar, also known as the Loonie.
Furthermore, cooling consumer inflation in Canada has also weakened the Canadian Dollar, contributing to the USD/CAD pair’s recent bounce from the 1.3300 mark, which was a two-month low touched last Friday.
The emergence of fresh US Dollar buying is also assisting the major currency pair, with the USD Index climbing back closer to the weekly high due to growing acceptance of further policy tightening by the Federal Reserve (Fed).
Traders are expecting a 25 bps rate hike by the US central bank in May, with some pricing in a small chance of another rate hike in June. The USD’s safe-haven status has been further strengthened due to the equity markets’ generally weaker tone.
Friday’s upward move is also attributed to technical buying above the 1.3500 psychological mark. The current fundamental backdrop suggests that the USD/CAD pair’s path of least resistance is to the upside.
Traders are now focusing on the flash US PMI prints, US bond yields, and the broader risk sentiment, which will drive USD demand. Furthermore, oil price dynamics should provide some impetus to the major currency pair.
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