During Friday’s Asian session, the USD/CAD pair maintained a tight trading range, showing signs of pausing its recent pullback from November 22 highs. Hovering just below the 1.3700 mark, spot prices remained relatively unchanged for the day, with this week’s breakout above the 1.3600-1.3610 supply zone favoring bullish sentiments and indicating potential for further near-term appreciation.
The uptick in crude oil prices, driven by escalating tensions in the Middle East following a suspected Israeli strike on the Iranian embassy in Syria, provided support to the commodity-linked Canadian dollar (CAD). Alongside subdued US dollar (USD) activity, this acted as a headwind for the USD/CAD pair. However, concerns regarding increased non-OPEC output, particularly from the US, may limit gains for oil prices.
Additionally, anticipation that the Federal Reserve (Fed) might postpone interest rate cuts favored USD bulls, thus curbing downward pressure on the currency pair.
Wednesday’s release of hotter-than-expected US consumer inflation figures prompted investors to revise their expectations of the timing of the first Fed interest rate cut from June to September. Consequently, bets on the number of rate cuts for the year decreased, supporting elevated US Treasury bond yields and bolstering the USD, which remained near its November highs.
From a technical standpoint, the USD/CAD pair’s ability to breach the 1.3600-1.3610 barrier and sustain its upward momentum suggests a bullish bias in the near term.
Market participants are now eyeing the release of the Preliminary Michigan Consumer Sentiment Index later in the North American session, along with speeches by FOMC members, which are expected to influence USD demand. Coupled with oil price dynamics, these factors are likely to create short-term trading opportunities around the USD/CAD pair, which appears poised for a second consecutive week of gains.
