USD/CAD Retreats from Weekly High, Stays Below 1.3700

The USD/CAD pair is experiencing a decline in the Asian trading session on Friday, retreating from the weekly high it reached at 1.3700. As of the moment, the pair is trading within the range of 1.3680 to 1.3675. Several factors are contributing to this downward movement, although there is some support preventing a significant decline.

One key factor putting pressure on the USD/CAD pair is the rise in Crude Oil prices, which is bolstering the Canadian dollar (often referred to as the Loonie). Additionally, the US dollar (USD) is showing a slightly weaker performance, serving as another headwind for the USD/CAD pair. The recent dovish statements made by various Federal Reserve (Fed) officials have indicated that the central bank is approaching the end of its interest rate hike cycle. This has led to a containment of US Treasury bond yields, hindering the USD from capitalizing on the robust recovery it exhibited on Thursday, rebounding from a low that lasted for over two weeks.

However, any substantial losses for the USD are somewhat limited due to the revival of expectations for additional tightening of Fed policies. This, in turn, supports the potential for dip-buying in the USD/CAD pair. Both the headline and core Consumer Price Index (CPI) in the US have remained above the Fed’s 2% target, rekindling expectations for at least one more rate hike by the Fed by the end of the year. This scenario restricts the decline in US bond yields and warrants caution when considering new bearish positions in the USD.

Furthermore, concerns regarding possible disruptions in the supply of Crude Oil, arising from the Israel-Palestinian conflict, have subsided. There are worries that a global economic slowdown could affect fuel demand, which in turn could cap the upward movement of Crude Oil prices. This situation reinforces the short-term positive outlook for the USD/CAD pair and indicates that the path of least resistance is upwards. In the near future, traders are keeping a close eye on the speech by Philadelphia Fed President Patrick Harker and the release of the Preliminary Michigan Consumer Sentiment Index, as these factors will influence demand for the USD.