The USD/CAD pair is making incremental gains, reaching the 1.3400 level as the European session unfolds on Wednesday. However, the pair remains below the multi-week high achieved in the previous session.
Supporting the US Dollar (USD) is the sustained elevation of US Treasury bond yields, hovering near a three-week peak set last Friday. The 10-year US government bond yield remains above 4.0%, maintaining its strength due to reduced expectations for a more aggressive policy easing by the Federal Reserve (Fed). This reinforces the Greenback’s position and provides momentum to the USD/CAD pair.
Despite the upward movement, the bullish momentum is tempered by increased buying activity around Crude Oil prices. Concerns about the supply disruptions caused by rising geopolitical tensions in the Red Sea, coupled with the suspension of production at Libya’s largest oil field and a substantial drawdown in US crude inventories, lend support to Crude Oil prices. This, in turn, could buoy the commodity-linked Canadian Dollar (Loonie) and act as a limiting factor for the USD/CAD pair.
Traders appear cautious, possibly awaiting the release of the latest US consumer inflation figures scheduled for Thursday. The Consumer Price Index (CPI) report is expected to provide insights into the Fed’s potential policy actions, impacting the timing of the first interest rate cut. The outcome of this report will play a pivotal role in influencing USD price dynamics and determining the USD/CAD pair’s next directional move.
In the absence of significant macro releases from either the US or Canada on Wednesday, the USD demand is likely to be driven by US bond yields. The mixed fundamental backdrop suggests that the USD/CAD pair may continue its range-bound trading until the crucial US inflation data is released.
