Ella 
USD/CAD attracted some bargain hunting after falling below 1.3800 to hit a one-week low during the session and hit a new high of the day in early European trading on Tuesday. The spot exchange rate is currently trading around the 1.3835-1.3840 range and appears to have halted a sharp retracement from the highest level since October 2022 hit on Monday.
Amid worries about China’s economic slowdown, U.S. macro data was weak, showing the world’s largest economy is slowing faster than initially expected. That was expected to dampen fuel demand, dragging crude oil prices lower for a fourth day in a row, weakening demand for the commodity currency the Canadian dollar. Beyond this, a pickup in U.S. dollar (USD) demand, supported by a rebound in U.S. Treasury yields, will be a key factor supporting USD/CAD.
Still, improving global risk sentiment and dovish expectations from the Federal Reserve could hamper aggressive bets by dollar bulls and limit the pair’s gains. In fact, markets now see a near 100% chance of a 50 basis point rate cut by the U.S. central bank in September. This will curb further upside in U.S. bond yields and the U.S. dollar, and USD/CAD bulls will need to be cautious in the absence of any relevant market-moving economic data from the U.S. or Canada.
In addition, the risk of broader conflict in the Middle East continues to fuel concerns about supply disruptions in major oil-producing regions, which may help limit the decline in crude oil prices. Therefore, it would be prudent to wait for strong follow-through buying before the USD/CAD pair resumes the upward trajectory it has been on for over a month.
