The USD/CAD pair retraced its gains from the previous session, trading around 1.3620 during the European hours on Friday. The commodity-linked Canadian Dollar (CAD) finds support from higher crude oil prices, given Canada’s position as the largest oil exporter to the United States (US).
Crude Oil Prices and Their Impact
West Texas Intermediate (WTI) crude oil price extends its winning streak for the third session, trading around $82.20 per barrel at the time of writing. Crude oil prices received support as softer-than-expected US Consumer Price Index (CPI) data for June has raised speculation of a potential Federal Reserve (Fed) rate cut in September. Lower borrowing costs support the US economy, the largest oil consumer in the world, which in turn boosts crude oil demand.
US Economic Data and Fed Speculations
In June, the US Consumer Price Index (CPI) decreased by 0.1% month-over-month, reaching its lowest level in over three years. The core CPI, which excludes volatile food and energy prices, rose by 3.3% year-over-year, compared to May’s increase of 3.4%, matching expectations. Meanwhile, the core CPI increased by 0.1% month-over-month, below the expected and prior rise of 0.2%.
On the policy front, Federal Reserve Bank of Chicago President Austan Goolsbee commented on Thursday that the US economy appears to be on track to achieve 2% inflation. This suggests Goolsbee is gaining confidence that the time for cutting interest rates may soon be approaching. He also stated, “My view is, this is what the path to 2% looks like,” according to Reuters.
Canadian Economic Data and BoC Speculations
In Canada, the unemployment rate increased to 6.4% in June, the highest since January 2022, with the economy losing 1,400 jobs. This has heightened the likelihood of the Bank of Canada (BoC) implementing further interest rate cuts to boost economic growth. Consequently, the yield on Canadian 10-year government bonds dropped to about 3.4%, reflecting dovish expectations from the BoC.
Upcoming Data and Market Expectations
Traders await the Michigan Consumer Sentiment Index and US Producer Price Index (PPI) data, due on Friday, to gain further insights into the US economy. On the Loonie’s front, May’s Building Permits (MoM) will be closely watched.
Conclusion
The movement of the USD/CAD pair is currently influenced by various factors, including crude oil prices, economic data from both the US and Canada, and speculations regarding future monetary policy decisions by the Fed and the BoC. The higher crude oil prices have provided support for the CAD, while mixed economic data and potential rate cuts by the Fed have impacted the USD. As traders await further economic indicators, the USD/CAD pair is likely to experience continued volatility.
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