- USD/CAD extends gains as fears about the Middle East situation increase.
- The US Dollar faced resistance after Fed Chairman Powell’s dovish remarks on the trajectory of the interest rate.
- Solid US economic figures provide support to support the Greenback.
USD/CAD continues its winning streak for the fourth consecutive day, trading lower around 1.3720 during the European session on Friday. The pair receives upward support while the risk sentiment prevails, which could be attributed to the fears of escalation in the Middle East conflict, especially due to the preparations for a possible ground invasion of Gaza by Israel.
Federal Reserve Chairman Jerome Powell’s recent statements have contributed to some pressure on the USD/CAD pair. Powell indicated that the central bank has no plans to raise rates anytime soon, offering a reprieve for the pair. However, Powell also emphasized that future policy adjustments would depend on economic indicators, particularly growth and labor market conditions.
US President Joe Biden’s planned address on Thursday underscores the global significance of the Middle East situation, raising concerns about potential wider effects on currency markets.
The US Dollar Index (DXY) is rebounding from weekly lows, reaching around 106.40. Higher US Treasury yields and robust economic data, including a drop in Initial Jobless Claims to their lowest since January, are contributing to the dollar’s strength. However, challenges in the housing market, reflected in a 2.0% MoM decline in existing home sales, highlight some economic headwinds.
The release of weaker Canadian consumer inflation figures on Tuesday led investors to lower their expectations for another rate hike from the Bank of Canada (BoC). This in turn is seen as an important factor contributing to the relative underperformance of the Canadian Dollar (CAD), providing support for the USD / CAD pair.
However, the bullish trend in crude oil prices, which supports the commodity-linked Loonie, could act as a counterforce, limiting further gains in the USD/CAD pair.
The price of West Texas Intermediate (WTI) oil is extending gains for the fourth consecutive day, trading higher around $89.00 per barrel during the European session on Friday.
The recent rise in oil prices is closely linked to concerns about the potential escalation of the Israel-Gaza conflict across the Middle East. There are fears that such an escalation could disrupt oil supplies from one of the world’s major producing regions.
In addition, the US government’s decision to purchase 6 million barrels of crude oil for delivery to the Strategic Petroleum Reserve (SPR) in December and January adds another dimension to the market dynamics. This move is part of a wider initiative to replenish the emergency supply, reflecting efforts to improve the country’s energy security.
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