In Thursday’s Asian trading session, the USD/CAD pair has firmly positioned itself above the pivotal round-level resistance of 1.3700, with the Loonie asset eyeing a reclaim of the weekly high near 1.3740, propelled by a strengthening US Dollar. The surge in demand for the US Dollar follows a notable decline in traders’ expectations for the Federal Reserve (Fed) to implement interest rate cuts during its September meeting.
Investor sentiment remains cautious, with concerns lingering over the possibility of the Fed delaying rate adjustments until the last quarter of the year. This sentiment is mirrored in the significant losses seen in S&P 500 futures during the Tokyo session, indicative of a pronounced decrease in risk appetite among investors. The US Dollar Index (DXY), tracking the performance of the Greenback against a basket of six major currencies, has surged above the critical resistance level of 105.00.
The prospect of prolonged higher interest rates by the Fed augurs well for yields on interest-bearing assets. Although 10-year US Treasury yields have dipped slightly to 4.61%, they remain near a four-week high.
Market participants eagerly anticipate the release of the United States core Personal Consumption Expenditure Price Index (PCE) data for April, slated to significantly impact speculation regarding Fed rate cuts in September. This crucial inflation data is scheduled for publication on Friday, with both annual and monthly core PCE inflation readings expected to show steady growth of 2.8% and 0.3%, respectively.
On the Canadian Dollar front, investors await the release of Gross Domestic Product (GDP) data across various timeframes, also scheduled for Friday. Forecasts suggest that on a month-on-month basis, the Canadian economy likely remained stagnant following a 0.2% expansion in February. For the first quarter of the year, the economy is anticipated to have expanded by 2.2% on an annualized basis. A weaker-than-expected GDP figure would heighten the likelihood of the Bank of Canada (BoC) commencing interest rate reductions as early as the June meeting.
