Canadian Dollar edges lower amid rebounding USD as traders await key US macro data

USD/CAD moves away from a one-week low amid a goodish pickup in USD demand.
Escalating US-Iran tensions fuel inflation fears and boost Fed hike bets, supporting the USD.
The BoC’s dovish bias and trade war fears offset positive oil prices, undermining the Loonie.

Haresh Menghani FXStreet

The USD/CAD pair attracts some buyers on Thursday and, for now, seems to have snapped a two-day losing streak to a more than one-week low, around the 1.4025-1.4020 area touched the previous day. Spot prices currently trade around the 1.4060 zone, up 0.10% for the day, as traders look to important US macroeconomic releases for a fresh impetus.

Thursday's US economic docket features the Advance Q2 GDP report and the Personal Consumption Expenditures (PCE) Price Index. The crucial data will influence market expectations about the US Federal Reserve's (Fed) future policy path amid bets for at least one rate hike by the end of this year. The outlook, in turn, will drive the US Dollar (USD) demand and produce some meaningful trading opportunities around the USD/CAD pair.

In the meantime, rapidly changing inflation dynamics due to volatile energy prices back the case for a more hawkish US central bank. This, along with escalating US-Iran tensions, helps the USD to regain some positive traction following the previous day's post-FOMC decline. In fact, the US military launched fresh strikes against Iranian targets in response to surprise missile attacks on American forces based in the Middle East on Tuesday.

This comes on top of joint US-Saudi strikes against Iran-aligned terrorists in Iraq and raises the risk of a broader regional conflict. Moreover, reports suggest that Yemen’s Iran-backed Houthis are considering imposing fees on commercial ships sailing through the southern Red Sea. Adding to this, the US-Iran standoff over the Strait of Hormuz continues to fuel worries about significant disruptions to global energy supplies, supporting crude oil prices.

Analysts at Rabobank observe that “renewed escalation in the Middle East is putting some upward pressure on energy prices again,” with Brent crude having “touched $93 per barrel this morning.” They highlight that the latest flare-up in regional tensions is once more feeding into the oil market, reinforcing the geopolitical risk premium embedded in current pricing.

The commodity-linked Loonie, however, struggles to attract any meaningful buyers amid the Bank of Canada's (BoC) dovish bias and trade war fears. This, in turn, favors USD/CAD bulls, suggesting that any intraday corrective slide is likely to be bought into and remain limited.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

AUD/USD sticks to positive bias above 0.7100; lacks bullish conviction

AUD/USD trades with a positive bias for the second straight day, holding above 0.7100 in the Asian session on Friday as softer US bond yields keep US Dollar bulls on the back foot. Furthermore, hawkish RBA Governor Bullock's comments boost rate hike bets and support the Aussie. However, the Fed's hawkish outlook, along with geopolitical uncertainties, limits USD losses and caps the pair.

USD/JPY retreats below 157.00 as Ueda speaks on outlook

USD/JPY reverses the uptick to two-week highs near 157.30 in the European session on Friday as the Japanese Yen finds some respite from BoJ Governor Ueda's comments at the post-monetary policy meeting press conference. Earlier in the day, the central bank hiked the interest rate to 1.25%, with a surprise 7-2 vote.

Gold advances to fresh weekly top; eyes $$4,400 as softer US bond yields cap USD gains

Gold attracts some follow-through buying for the second straight day, and touches a fresh weekly high heading into the European session. US bond yields retreat further from multi-year highs as the recent pullback in crude oil prices helped alleviate immediate fears of runaway inflation. This caps gains for the US Dollar and supports the bullion.

Bitcoin extends recovery, Ethereum eyes $2,500, XRP holds $1.30

Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) extend their recovery, trading above $76,700, $2,400 and $1.300, respectively, on Friday. These top three cryptocurrencies now face key technical levels that could determine whether their recoveries extend further or pull back.

Cardano extends gains on bullish derivatives

Cardano (ADA) extends its recovery, trading above $0.210 at the time of writing on Friday, after finding support around a key zone earlier this week. Improving derivatives positioning and supporting technical indicators indicate growing bullish sentiment among ADA traders. Derivatives data shows a bullish tilt among Cardano traders.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.