The USD/CAD pair bounced off the 1.3580 area for the second successive day on Thursday, albeit struggles to capitalize on the move and remains depressed through the first half of the European session. The pair is currently placed around the 1.3600 mark and is influenced by diverging forces.
The US Dollar (USD) stages a modest recovery from over a one-week low and is a crucial factor in supporting the USD/CAD pair. The prevalent cautious mood around the equity markets – amid looming recession risks – helps revive demand for the safe-haven Greenback. That said, an intraday turnaround in Crude Oil prices, following the early slump to the lowest level since December 2021, underpins the commodity-linked Loonie and acts as a headwind for the major.
The Federal Reserve’s (Fed) less hawkish outlook is holding back the USD bulls from placing aggressive bets and keeping a lid on the USD/CAD pair. It is worth recalling that the US central bank, as was widely expected, raised interest rates by 25 bps and opened the door for a possible pause in June at the end of a two-day monetary policy meeting on Wednesday. In the post-meeting presser, Powell signaled that the Fed was close to hitting the terminal rate of the current hiking cycle.
This, along with concerns over the US debt ceiling and renewed fears of a full-blown banking crisis, keeps the US Treasury bond yields depressed and should cap any meaningful upside for the Greenback, at least for now. Hence, it will be prudent to wait for solid follow-through buying before placing fresh bullish bets and positioning for an extension of this week’s goodish rebound from the 100-day Simple Moving Average (SMA) support near the 1.3530-1.3525 region.
Market participants now look to the release of the usual Weekly Initial Jobless Claims data from the US, due later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Traders will further take cues from Oil price dynamics to grab short-term opportunities ahead of the Bank of Canada (BoC) Governor Tiff Macklem’s scheduled speech later this Thursday.
The focus, however, will remain glued to the closely-watched US monthly jobs data, popularly known as the NFP report on Friday. The data will influence the USD, which, along with the simultaneous release of Canadian monthly employment details, will help investors to determine the next leg of a directional move for the USD/CAD pair.