USD/CAD bears making a move for fresh lows

USD/CAD is under pressure in Asia with the CAD clawing back some recent declines, as a deal to temporarily suspend the U.S. debt ceiling boosted investor sentiment. USDCAD was trading 0.12% lower at 1.3572 after moving in a range of 1.3584 to 1.3618 on Monday around its weakest intraday level since April 28 at 1.3654.

The Greenback, as per the DXY index, dropped on Tuesday against a basket of major currencies, although remains news of its two-month peak in the 104.40s. A  deal over the US debt ceiling has lifted risk sentiment and now traders await to see how it goes through a process in Congress.

There are that a handful of hard-right Republican lawmakers will oppose a deal to raise the United States' $31.4 trillion debt ceiling meaning it will be a challenge to get the package through the Republican-controlled House of Representatives and Democratic-controlled Senate before the limit is reached. On Friday, US Treasury Secretary Janet Yellen said the government would default if Congress did not increase the debt ceiling by June 5.  Meanwhile, longer-dated US Treasuries rallied in Asia on Tuesday on the debt ceiling deal.

Central bank sentiment

As for the Federal Reserve sentiment, markets are pricing in a 60% chance of a 25 basis-point hike in June, compared with a 26% chance a week earlier, according to CME FedWatch tool. Traders will look at Friday's job data and US Nonfarm payrolls likely slowed modestly in May, advancing at a still strong 200k+ pace for a second consecutive month, analysts at TD Securities said. 

´´We also look for the UE rate to stay unchanged at a historical low of 3.4%, and for wage growth to print 0.3% MoM  (4.4% YoY). Conversely, we look for the ISM mfg index to improve modestly, but to still signal contraction for the sector in May,´´ the analysts concluded. 

Looking ahead to the domestic week, Canadian Gross Domestic Product data is due for release on Wednesday and there are expectations that the economy grew at an annualized rate of 2.5% in the first quarter. This comes ahead of next week´s interest rate decision by the Bank of Canada. Markets are pricing a roughly 30% chance of the central bank hiking its benchmark rate for the first time since January.