The USD/CAD pair saw an increase in buyers on Friday due to a rise in USD demand. The Fed’s hawkish outlook boosted US bond yields and the Greenback. However, bullish Crude Oil prices supported the Canadian Dollar and limited gains before the US PCE data release.
The pair hit a one-and-half-week high during the Asian session before retreating slightly to trade around 1.3715, up over 0.10% for the day. The USD gained traction following softer US macro releases, reaching a two-month peak. This helped lift the USD/CAD pair as investors awaited crucial US inflation data later in the day.
The focus was on the US PCE Price Index, which could impact Fed rate cut expectations. A lower-than-expected PCE deflator could support two rate cuts by the Fed, weakening the USD. Conversely, an upward surprise may delay the first rate cut and boost the Greenback.
The Fed’s potential rate cuts in September, easing inflation pressures, and moderating US economic growth capped the USD. On the other hand, the CAD gained support from domestic consumer inflation, reducing bets for a July rate cut by the Bank of Canada. Additionally, rising Crude Oil prices bolstered the Loonie, keeping a lid on the USD/CAD pair.
Factors driving the Canadian Dollar include BoC interest rates, Oil prices, economy health, inflation, and Trade Balance. The US economy’s condition also influences the CAD due to its status as Canada’s largest trading partner.