Ella 
The USD/CAD pair retreated a few points from around the 1.3500 level touched on Thursday, or its highest level since June, and fell to fresh daily lows early in the European session. However, spot prices are still able to hold above the 1.3500 psychological mark and seem poised to extend their strong upward momentum from earlier this month.
Crude oil prices recovered slightly from two-week lows and now appear to have snapped a three-day losing streak, which in turn supported the commodity-linked Canadian dollar. On the other hand, the U.S. dollar (USD) retreated from a more than two-month high, acting as another headwind for USD/CAD. However, the fundamental backdrop appears firmly in favor of bearish traders, so caution is needed before positioning for any meaningful corrective decline.
Investors remained concerned about deteriorating economic conditions in China, the world’s largest oil importer. This, combined with concerns that economic headwinds from rapidly rising borrowing costs will sap demand, should cap any meaningful gains in crude. Additionally, firm expectations that the Federal Reserve (Fed) will maintain higher interest rates for an extended period of time favored USD bulls, further limiting the downside for the USD/CAD pair, at least for now.
It is worth recalling that the minutes of the July 25-26 FOMC policy meeting released on Wednesday showed that policymakers continued to make fighting inflation a priority but were divided on whether more rate hikes were needed. In addition, upcoming US macro data showing a remarkably resilient economy should allow the Fed to maintain its hawkish stance. That pushed the yield on the benchmark 10-year U.S. government bond back to its highest level since 2008, hit in October 2022.
Adding to this, a generally risk-off environment – such as a broadly weak tone in equity markets – also adds credence to the positive outlook for the safe-haven dollar. This in turn suggests that the USD/CAD pair has the least resistance to the upside. Traders will now have their eyes on the U.S. economic calendar, which includes the usual weekly jobless claims and the Philadelphia Fed manufacturing index. These data could influence USD price dynamics and provide some impetus to USD/CAD.
