The USD/CAD exchange rate regained its upward momentum on Friday. After pulling back from last week’s high near 1.3860, the pair climbed to around 1.3815 in early European trading. Traders awaited key US inflation figures to guide their next moves.
Focus on PCE Price Index
All eyes are on Friday’s release of the US Personal Consumption Expenditures (PCE) price index. This report is crucial for market expectations of Federal Reserve rate cuts. Strong inflation data could bolster the US dollar, while a softer print might curb its gains and alter the USD/CAD trajectory.
Oil Prices Weaken the Loonie
Weaker crude oil prices added to the Canadian dollar’s woes. Since Canada’s economy is closely tied to oil exports, softer oil tends to drag the loonie lower. This dynamic gave the US dollar additional support, helping USD/CAD reverse some of Thursday’s losses.
Broader Dollar Headwinds
Despite the bounce, the US dollar still faces obstacles. Concerns over the US fiscal deficit and growing debt have sapped some dollar strength. Additionally, markets are pricing in potential Fed rate cuts later this year. These factors limit aggressive dollar buying.
BoC Rate Outlook Caps Gains
On the Canadian side, the Bank of Canada appears less likely to cut rates in June. This reduces downward pressure on the loonie and could cap further USD/CAD advances. Traders may therefore wait for clear follow-through buying before betting on a sustained rally.
What’s Next?
USD/CAD is on track to post a modest weekly gain. Key drivers in the coming days will be the PCE inflation data, oil price movements, and central bank signals from both the Fed and the BoC. A strong PCE print and continued oil weakness could push the pair back toward 1.3860, while disappointing inflation or firmer oil may drag it lower.
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