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Canadian Dollar strengthens on softer Fed outlook while Oil prices curb further gains

  • The Canadian Dollar strengthens against the US Dollar after US PCE inflation meets expectations.
  • Markets scale back expectations for a Fed rate hike in July, putting pressure on the Greenback.
  • BoC meeting minutes reinforce a cautious policy stance, while lower Oil prices limit the Loonie's upside.

USD/CAD trades lower around 1.4180 on Friday, down 0.13% at the time of writing, as the US Dollar (USD) weakens following the latest US inflation data. Investors have reduced expectations for another Federal Reserve (Fed) rate hike, supporting a rebound in the Canadian Dollar (CAD), although falling Oil prices continue to cap the Loonie's gains.

The US Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, rose 4.1% YoY in May, matching market expectations. On a monthly basis, the PCE Price Index increased 0.4%, below the 0.5% consensus forecast, reinforcing expectations that inflationary pressures may have peaked or are close to doing so.

Following the data release, financial markets reduced the chances of a Fed rate hike at the July meeting. According to the CME FedWatch tool, the odds of a 25-basis-point increase declined to around 29.9%, from 38.5% a week ago, weighing on the US Dollar.

However, the Canadian Dollar continues to face headwinds. West Texas Intermediate (WTI) Oil trades around $69.50 at the time of press, down 2.62% on the day, after the United States (US) and Iran reached a preliminary peace agreement, raising expectations of improved global Oil supply. Lower Oil prices typically reduce support for the commodity-linked Canadian currency.

Meanwhile, the Bank of Canada (BoC) meeting minutes showed policymakers agreed to keep monetary policy nimble in response to the combined risks of new US trade restrictions and volatile energy prices. Reflecting this cautious stance, markets now price in only 17 basis points of additional tightening by year-end, down sharply from around 60 basis points a month ago, according to Reuters.

Commerzbank also argues that the recent rise in USD/CAD has gone too far. Analyst Michael Pfister notes that the pair's rally since early May has been driven almost entirely by falling Oil prices and stronger expectations for Fed tightening, two factors the bank considers overstated. In Commerzbank's view, current USD/CAD levels appear exaggerated, suggesting further gains would likely require significantly weaker Canadian-specific fundamentals.

Canadian Dollar Price Today

The table below shows the percentage change of Canadian Dollar (CAD) against listed major currencies today. Canadian Dollar was the strongest against the Australian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.31%-0.21%-0.11%-0.14%0.09%-0.09%-0.23%
EUR0.31%0.09%0.20%0.20%0.41%0.20%0.09%
GBP0.21%-0.09%0.11%0.08%0.33%0.13%-0.01%
JPY0.11%-0.20%-0.11%-0.02%0.20%0.00%-0.12%
CAD0.14%-0.20%-0.08%0.02%0.23%0.02%-0.12%
AUD-0.09%-0.41%-0.33%-0.20%-0.23%-0.19%-0.33%
NZD0.09%-0.20%-0.13%-0.00%-0.02%0.19%-0.13%
CHF0.23%-0.09%0.00%0.12%0.12%0.33%0.13%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Canadian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent CAD (base)/USD (quote).

Author

Ghiles Guezout

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

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