On Thursday, the USD/CAD currency pair found some dip-buyers and moved away from a one-week low near the 1.3785 mark, touched the previous day. Spot prices are currently trading in the 1.3815-1.3820 range, supported by a modest increase in US Dollar (USD) demand.
The USD Index (DXY), which measures the Greenback against a basket of currencies, has rebounded from a three-week low reached after Wednesday’s Federal Open Market Committee (FOMC) policy decision. Despite this rebound, the upside potential for the USD appears limited due to the Federal Reserve’s dovish outlook. The Fed has indicated the possibility of an early rate cut if inflation remains in line with expectations, following recent progress on inflation and a cooling labor market.
This dovish stance has driven US Treasury bond yields to a multi-month low, which, combined with a generally positive risk sentiment, is likely to constrain gains for the safe-haven USD and act as a headwind for the USD/CAD pair.
Meanwhile, Crude Oil prices are consolidating the previous day’s gains amid ongoing concerns about escalating tensions in the Middle East, which could disrupt oil supplies from the key producing region. This scenario supports the commodity-linked Canadian Dollar (Loonie) and may limit the upside for the USD/CAD pair, suggesting caution for bullish traders.
With no significant economic data scheduled for release from either the US or Canada on Thursday, the currency pair’s movements are expected to be influenced primarily by USD dynamics and oil price trends. Market attention will shift to the US Nonfarm Payrolls (NFP) report, scheduled for release on Friday, which is likely to be a key determinant of future currency movements.
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