Canadian Dollar depreciates due to lower Oil prices, Fed Minutes ahead

USD/CAD extended gains for the third successive session, trading around 1.3660 during the European hours on Wednesday. The appreciation of the pair could be attributed to a stronger US Dollar (USD), possibly led by the higher US Treasury yields. Traders await the Minutes from the Federal Open Market Committee (FOMC) meeting held on May 1, seeking further clues about the Fed's policy stance.

The US Dollar Index (DXY), which measures the value of the Greenback against the other 6 major currencies, edges higher to near 104.70 with 2-year and 10-year yields on US Treasury bonds standing at 4.56% and 4.43%, respectively, by the press time.

The Federal Reserve (Fed) maintains a cautious stance regarding inflation and the potential for rate cuts in 2024. Speaking at the event titled "Central Banking in the Post-Pandemic Financial System" on Wednesday, Federal Reserve Bank of Boston President Susan Collins emphasized that progress toward interest rate adjustment will take longer. Additionally, Fed Governor Christopher Waller mentioned that he would need to observe several more months of positive inflation data before feeling comfortable supporting a policy easing.

On the CAD front, lower crude oil prices are exerting pressure on the Canadian Dollar (CAD), given Canada's status as the largest Oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price trades around $77.80 per barrel, at the time of writing. The decline in crude Oil prices could be attributed to expectations of the Federal Reserve maintaining higher interest rates for an extended period, which may impact fuel consumption in the US, the world's largest Oil consumer.

The Bank of Canada's (BoC) preferred trimmed-mean core inflation rate eased to 2.9%. Moreover, the BoC’s median core rate dropped more than anticipated to 2.6%, marking its lowest level since June 2021. These developments have bolstered expectations of a rate cut from the BoC in June, thereby undermining the Canadian Dollar (CAD).