The USD/CAD pair is on the rise, trading above the key level of 1.3700 in the Asian session. The US Dollar’s strength is pushing the pair towards the weekly high of 1.3740. This surge in the US Dollar is fueled by declining expectations of the Federal Reserve cutting interest rates in September.
Investors are adopting a risk-averse approach as they fear the Fed may postpone rate cuts until the last quarter of the year. This sentiment is reflected in the S&P 500 futures, which have seen significant losses in the Tokyo session. The US Dollar Index (DXY) has surpassed the critical resistance level of 105.00, indicating strong demand for the Greenback.
The prospect of prolonged higher interest rates by the Fed is positive for interest-bearing assets. Although 10-year US Treasury yields have slightly decreased to 4.61%, they remain close to a four-week high. Investors are eagerly awaiting the release of the US core Personal Consumption Expenditure Price Index (PCE) data for April, which is expected to have a significant impact on speculations about Fed rate cuts in September.
Upcoming Canadian monthly and Q1 GDP data, to be released on Friday, will provide insights into the economic health of Canada. It is predicted that the Canadian economy may have remained stagnant on a month-on-month basis after a 0.2% growth in February. For the first quarter of the year, the economy is forecasted to have expanded by an annualized rate of 2.2%. Weak GDP figures could increase the likelihood of the Bank of Canada (BoC) lowering interest rates starting from the June meeting.
In conclusion, the USD/CAD pair is moving towards 1.3740, driven by the strength of the US Dollar. The cautious sentiment in the market ahead of the core PCE Inflation data and GDP releases for both the US and Canada is influencing investor behavior. With the Fed potentially delaying rate cuts and the BoC possibly considering rate reductions, the currency markets are experiencing heightened volatility. Traders and investors are closely monitoring economic indicators to determine the future trajectory of the USD/CAD pair and other currency pairs.
