USD/CAD struggled to capitalize on the previous day’s bullish move in Asia on Friday, oscillating between modest gains/small losses, breaking below the mid-1.3700 level.
Crude oil prices attracted some bargain hunting and are still on track for strong weekly gains on the back of assurances from OPEC+ to keep production low to support oil prices, which helped ease concerns about increased supply. OPEC+ further clarified that production increases will largely depend on oil prices and maintained its annual demand growth forecast, citing an improved shock outlook after the eventual reduction in global interest rates. This in turn continued to provide support for crude oil, supporting the commodity-linked Canadian dollar and preventing USD/CAD from rising.
On the other hand, the US dollar (USD)’s apparent rebound from the one-week low hit on Wednesday stalled amid market expectations that the Federal Reserve (Fed) could initiate rate cuts as early as September. Market bets were boosted by weak inflation data this week, which dragged US Treasury yields to their lowest level since April. This has therefore put the dollar bulls on the defensive, becoming another factor limiting the gains of the USD/CAD currency pair.
Meanwhile, the Federal Reserve adopted a more hawkish tone at its June policy meeting, which ended on Wednesday, and now sees only one rate cut in 2024. This may help limit the downside for US Treasury yields and the US dollar, thereby preventing traders from making aggressive bearish bets on USD/CAD. Traders are now looking forward to the first reading of the Michigan US Consumer Confidence Index, which, together with oil price developments, should provide fresh impetus for USD/CAD.
