During Wednesday’s European trading hours, the USD/CAD pair continued its upward momentum for the third consecutive session, hovering around the 1.3660 level. The appreciation of the pair can be attributed to a robust US Dollar (USD), potentially driven by higher US Treasury yields. Traders eagerly await the release of the Minutes from the Federal Open Market Committee (FOMC) meeting held on May 1, seeking additional insights into the Fed‘s monetary policy stance.
The US Dollar Index (DXY), which gauges the Greenback’s value against six other major currencies, has edged higher to nearly 104.70. This comes as 2-year and 10-year yields on US Treasury bonds stand at 4.56% and 4.43%, respectively, at the time of reporting.
The Federal Reserve (Fed) maintains a cautious stance on inflation and the possibility of rate adjustments in 2024. Speaking at the “Central Banking in the Post-Pandemic Financial System” event on Wednesday, Federal Reserve Bank of Boston President Susan Collins emphasized the prolonged timeline for interest rate adjustments. Additionally, Fed Governor Christopher Waller stated his preference for observing several more months of positive inflation data before considering policy easing.
On the Canadian Dollar (CAD) front, declining crude oil prices are exerting pressure, given Canada’s status as the largest oil exporter to the United States (US). West Texas Intermediate (WTI) crude oil is trading around $77.80 per barrel, contributing to the CAD’s weakness. The decrease in oil prices is attributed to expectations of the Federal Reserve maintaining higher interest rates, potentially impacting fuel consumption in the US, the world’s largest oil consumer.
Furthermore, the Bank of Canada’s (BoC) preferred trimmed-mean core inflation rate eased to 2.9%, while the median core rate dropped more than expected to 2.6%, its lowest level since June 2021. These developments have fueled speculations of a rate cut from the BoC in June, further undermining the Canadian Dollar (CAD).
