Anna 
In a recent shift during the European trading session, the USD/CAD pair has slightly receded from its highest levels since March, hovering just below the 1.3800 mark. This adjustment follows a period of relative stability throughout the day.
Market analysts suggest that the intraday pullback could be attributed to profit-taking activities, particularly after the pair touched a weekly low near 1.3660 earlier in the week and then surged by over 150 points in anticipation of crucial U.S. economic data. Nevertheless, the USD/CAD’s downward movement has been mitigated by the persistent bullish sentiment surrounding the U.S. dollar and a minor retreat in crude oil prices, a development that traditionally exerts downward pressure on the commodity-linked Canadian dollar.
A growing consensus is emerging that the Federal Reserve will maintain its hawkish stance and extend the duration of higher interest rates. This expectation has bolstered Treasury yields, with the 10-year benchmark yield nearing a 16-year peak and approaching the 5% threshold it surpassed earlier in the week. In addition to this, the prevailing risk aversion in the market has favored the safe-haven appeal of the U.S. dollar, which, in turn, has provided a degree of support to the USD/CAD pair.
Economic headwinds arising from the rapid surge in borrowing costs have dampened investor enthusiasm for riskier assets. Concerns about the potential spread of the Israel-Hamas conflict to the broader Middle East have further compounded market unease. Simultaneously, the looming risk of a recession has raised doubts about sustained global fuel demand and weighed on crude oil prices. These factors, coupled with the relatively dovish stance of the Bank of Canada (BoC), have exerted pressure on the Canadian dollar.
In response to concerns of an economic slowdown, the Bank of Canada has maintained its benchmark interest rate at a 22-year high of 5.0% for the second consecutive month and has revised down its 2023 economic growth forecast from 1.8% in July to 1.2%. The Bank also anticipates that inflation will continue to exceed its 2% target, with inflation averaging approximately 3.5% by mid-2024. This outlook keeps the door open for additional rate hikes, thereby discouraging bullish positions in the USD/CAD pair.
Market participants are adopting a cautious approach as they await key U.S. macroeconomic data scheduled for release on Thursday. The data include durable goods orders, the usual weekly jobless claims figures, and existing home sales statistics. The impact of these data releases, along with a planned speech by Federal Reserve Governor Christopher Waller, will significantly influence the demand for the U.S. dollar. Furthermore, short-term trading momentum in the USD/CAD currency pair will be influenced by developments in oil prices.
