The USD/CAD pair has retreated from its recent five-month peak of 1.3846, observed on Tuesday, as it trades around 1.3800 during the European trading hours on Wednesday. The minor pullback in the US Dollar (USD) contributes to the downward pressure on the pair, despite the US Dollar Index (DXY) hovering near its five-month pinnacle of 106.51 reached on the same day.
The current landscape sees the 2-year and 10-year yields on US Treasury bonds standing at 4.94% and 4.63%, respectively. The hawkish comments from Federal Reserve Chair Jerome Powell might have lent support to the US Dollar (USD), as he indicated that recent data suggests limited progress in inflation for the year, hinting at a prolonged period before achieving the 2% target.
On the other hand, the Canadian Dollar (CAD) faces weakness amid lower crude oil prices, with West Texas Intermediate (WTI) Oil dipping to approximately $84.40 per barrel at the time of reporting. This decline is noteworthy given Canada’s status as the largest oil exporter to the United States (US).
While tensions in the Middle East have raised concerns over oil supply, worries about global demand have taken precedence. Sluggish economic growth in China, coupled with anticipated increases in US commercial stockpiles, have underscored apprehensions surrounding global crude oil demand.
Additionally, recent Canadian inflation data has provided support for the Bank of Canada (BoC) to consider easing borrowing conditions in its forthcoming June meeting. Notably, the core inflation indicator has displayed signs of sustained moderation, potentially influencing the BoC’s stance on monetary policy adjustments.
In March, the Consumer Price Index (CPI) rose by 0.6% month-on-month (MoM), slightly below the anticipated 0.7%, but surpassing the previous increase of 0.3%. Meanwhile, Core CPI (year-on-year) witnessed a 2.0% rise, marking a slower pace compared to the previous increase of 2.1%. These indicators offer insights into the ongoing economic dynamics influencing the USD/CAD pair amidst a backdrop of mixed signals.
