Ella 
During the Asian session on Friday, USD/CAD encountered some supply, shedding some of the previous day’s gains to around 1.3700, the highest level since March 28. USD/CAD is currently trading around 1.3670-1.3665, down 0.10% on the day, but the fundamental backdrop warrants caution for aggressive bearish traders and prepare for USD/CAD to consolidate lower.
A number of factors have contributed to some profit-taking in the greenback, especially after the U.S. dollar index’s recent rally to six-month highs, which in turn weighed on USD/CAD somewhat. A retreat in U.S. bond yields, coupled with signs of stabilization in the stock market, Chinese inflation data this weekend and a G20 meeting will weigh on the safe-haven dollar. That said, the prospect of further policy tightening by the Federal Reserve should act as a “tailwind” for US bond yields and the dollar.
In fact, markets seem to believe the Fed will keep rates higher for longer and are pricing in a 25 basis point hike by the end of the year. In addition, U.S. macro data, including the U.S. ISM service industry purchasing managers index released on Wednesday and the number of U.S. initial jobless claims released on Thursday, remained positive, continuing to show that the U.S. economy is full of vitality, and the Fed should be able to stick to the hawks position. This, along with concerns over deteriorating economic conditions in China, should limit the dollar’s downside.
Meanwhile, the Bank of Canada is expected to cut rates relatively quickly after signs the Canadian economy is cooling rapidly, although it said it may raise borrowing costs again to tackle inflation. Elsewhere, crude oil prices came under selling pressure for a second day in a row, retreating further from their highest point of the year hit on Wednesday. This could weigh on the commodity-linked Canadian dollar and provide support for USD/CAD ahead of monthly Canadian employment data later today.
