The USD/CAD pair attracts some sellers near the 1.3565-1.3570 region, or over a one-week high touched earlier this Monday and extends its intraday descent through the first half of the European session. The pair is currently placed near the lower end of its daily trading range, just above the 1.3500 psychological mark, flirting with the 100-day Simple Moving Average (SMA) and is pressured by various factors.
The US Dollar (USD) takes a brief pause following the recent move up to its highest level since April and consolidates its substantial gains recorded over the past two sessions, which, in turn, acts as a headwind for the USD/CAD pair. A modest bounce in Crude Oil prices from over a one-week low set earlier this Monday underpins the commodity-linked Loonie. This is another factor exerting some downward pressure on the major, though any meaningful fall seems elusive.
Without any relevant fundamental trigger, a positive risk tone around the equity markets weighs on the safe-haven Greenback. That said, a further rise in the US Treasury bond yields, bolstered by speculations that the Federal Reserve (Fed) might stick to its hawkish stance, should act as a tailwind for the USD. The preliminary May reading from the University of Michigan released on Friday showed that consumers see prices climbing over the next five years at an annual rate of 3.2%.
This marks the highest level since 2011 and could force the Fed to keep interest rates higher for longer. Additional details of the Michigan survey revealed that consumer sentiment slumped to a six-month low in May after a standoff to raise the federal government’s borrowing. The data adds to worries about an imminent recession, which further supports prospects for the emergence of some dip-buying around the Greenback and contributes to limiting the downside for the USD/CAD pair.
Furthermore, worries that a deeper global economic downturn will dent the fuel demand should keep a lid on any meaningful recovery for Oil prices. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the upside, and any subsequent downfall is more likely to be bought into. Traders now look to the US economic docket, featuring the Empire State Manufacturing Index. This, along with a scheduled speech by Minneapolis Fed President Neel Kashkari and the broader risk sentiment, will drive the USD demand and provide some impetus to the major.
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