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USD/CAD has reversed the decline in the Asian market and is currently slightly above the 1.3700 round number, just within reach of the highest level since August 16 hit the previous day. However, the intraday gains lacked bullish conviction as a recovery in crude oil prices tends to support the commodity-linked Canadian dollar and the upcoming release of the latest U.S. Consumer Price Index (CPI).
Israeli Defense Minister Yoav Gallant promised that a strike against Iran would be “deadly, precise and unexpected.” That stoked concerns about supply disruptions in the Middle East, coupled with a major storm in Florida that sent fuel demand surging, helping crude prices extend an overnight rebound from one-week lows and support the Canadian dollar. However, expectations for a deeper interest rate cut by the Bank of Canada (BOC) limited the Canadian dollar’s gains. In addition to this, a bullish US dollar is also bullish for the pair.
The U.S. dollar index (DXY), which tracks the greenback against a basket of currencies, hit an eight-week high in the past hour as traders completely ruled out the possibility of another interest rate cut by the Federal Reserve in November. Recent U.S. macro data showed that the labor market is still resilient, forcing investors to scale back their expectations for more aggressive easing policies from the Federal Reserve. To make matters worse, the September FOMC meeting minutes released on Wednesday showed that the outside world unanimously believed that this unexpected rate cut would not lock in the specific pace of future interest rate cuts by the central bank. This has kept U.S. Treasury bond yields and the U.S. dollar higher, helping USD/CAD attract some bargain hunting.
However, traders appear more willing to wait for more clues on the path of the Fed’s rate cuts before establishing new long dollar bets. Therefore, market focus will remain on the all-important US Consumer Price Index (CPI) due later today, followed by the US Producer Price Index (PPI) due on Friday. In addition to this, Canada’s monthly employment data released on Friday will also determine the near-term trend of the USD/CAD pair.
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