The USD/CAD pair retains its positive stance, consolidating its gains after a slight pullback on Monday. Trading higher around 1.3600 during the Asian trading session, the pair’s upward trajectory follows hawkish remarks from Federal Reserve Bank of Atlanta President Raphael Bostic on Friday. Bostic’s revised projection of one interest rate cut this year, down from the earlier estimation of two, underscores concerns over persistent inflation and robust economic indicators.
Conversely, the Canadian Dollar (CAD) faces downward pressure following indications of potential rate cuts in 2024 in the Bank of Canada’s (BoC) latest meeting minutes. Deputy Governor Toni Gravelle reiterated the central bank‘s commitment to quantitative tightening by 2025, emphasizing its sustainability amid gradual interest rate reductions.
Support for the CAD stems from elevated crude oil prices, mitigating losses for the USD/CAD pair. Additionally, stronger-than-expected Canadian Retail Sales data potentially bolstered the Canadian Dollar’s position.
Meanwhile, the US Dollar Index (DXY) dips to near 104.40 as yields on US Treasury bonds remain stable, with the 2-year and 10-year yields holding at 4.60% and 4.21%, respectively, at the time of reporting. Despite the rise in US Treasury yields, the USD struggles to gain traction.
Federal Reserve Chair Jerome Powell’s remarks during a press conference underscore the central bank’s cautious approach, noting that an unexpected rise in unemployment could prompt consideration of interest rate reductions. Powell reassured markets of the Federal Reserve’s commitment to measured responses to consecutive months of elevated inflation figures.
Investors are poised to closely monitor the release of Gross Domestic Product (GDP) data for the fourth quarter of 2023 from the United States (US), along with Canadian GDP data for January scheduled for release on Thursday. These data points are anticipated to provide further insights into the economic outlook for both nations, influencing currency movements in the near term.
