Ella 
The USD/CAD pair faced selling pressure for a second straight day on Thursday, moving further away from the near four-week high near 1.3415 hit on Tuesday. USD/CAD is currently trading around the 1.3365-1.3360 area, down just over 0.10% for the day, as traders now look to the latest US consumer inflation data to provide fresh impetus.
Crucially, US inflation will influence the Federal Reserve’s policy decisions going forward, which in turn will drive demand for the US dollar (USD), providing new directional momentum for the USD/CAD pair. USD/CAD continued its consolidation trend ahead of key U.S. data risks, remaining within a one-week range amid uncertainty over when the Federal Reserve will begin cutting interest rates. In addition to this, the market’s maintenance of positive risk appetite is seen as another factor that suppresses the relative safe-haven status of the US dollar and puts some pressure on USD/CAD.
Meanwhile, rising crude oil prices were seen supporting the commodity-linked Canadian dollar and contributing to USD/CAD’s upward bias. That said, it seems unlikely oil prices will be able to move higher against the backdrop of bearish fundamentals. A report from the Energy Information Administration (EIA) on Wednesday showed an unexpected weekly build in U.S. inventories, adding to concerns that global oil consumption will slow in 2024. This offset to a greater extent concerns about possible disruptions in oil supply from the Middle East, which was negative for oil prices.
In addition to this, the possibility of more aggressive easing by the Federal Reserve is also shrinking, which still supports the rise in US Treasury yields, which is beneficial to USD bulls and helps prevent USD/CAD from falling. Therefore, it would be prudent to wait for strong follow-through selling before confirming that the recent strong rally from the $1.3175 area (or the multi-month low hit in late December) is over and placing a position on further USD/CAD declines.
