USD/CAD flat lines around 1.3700, looks to US macro data for fresh impetus

USD/CAD struggles to capitalize on a two-day-old recovery trend from a three-week through.
The Fed rate-cut uncertainty caps the upside for the USD and acts as a headwind for the pair
A downtick in Crude Oil prices undermines the Loonie and lends some support to the major.

Haresh Menghani FXStreet

The USD/CAD pair seesaws between tepid gains/minor losses during the Asian session on Thursday and for now, seems to have stalled its goodish rebound from the 1.3620-1.3615 region, or a three-week low touched on Tuesday. Spot prices currently trade near the 1.3700 mark, nearly unchanged for the day as traders now await the release of US macro data before placing fresh directional bets.

The market focus will remain squarely on the US Personal Consumption Expenditures (PCE) Price Index on Friday, which is seen as the Federal Reserve's (Fed) preferred inflation gauge. This will play a key role in influencing market expectations about the Fed's future policy decisions, which, in turn, will drive the US Dollar (USD) demand and provide some meaningful impetus to the USD/CAD pair. In the meantime, Thursday's US economic docket – featuring the final Q1 GDP print, Durable Goods Orders, the usual Initial Weekly Jobless Claims and Pending Home Sales – will be looked upon for short-term trading opportunities.

Ahead of the key releases, the uncertainty about the likely timing of when the Fed will start its rate-cutting cycle fails to assist the USD to capitalize on the previous day's rally to the highest level since early May. The Canadian Dollar (CAD), on the other hand, continues to draw support from reduced bets for a July rate cut by the Bank of Canada (BoC), especially after data released on Tuesday showed an upward surge in the domestic consumer inflation in May. This, in turn, is seen capping the upside for the USD/CAD pair, though a downtick in Crude Oil prices undermines the commodity-linked Loonie and acts as a tailwind.

The Energy Information Administration (EIA) reported a surprise jump in US inventories on Wednesday, which fuels concerns about sluggish demand from the world's top Oil consumer and weighs on the black liquid. That said, worries about potential supply disruptions in Russia and the Middle East should help limit deeper losses for Crude Oil prices. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further near-term appreciating move for the USD/CAD pair.

Economic Indicator

Personal Consumption Expenditures - Price Index (YoY)

The 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 YoY reading compares prices in the reference month to a year earlier. Price changes may cause consumers to switch from buying one good to another and the PCE Deflator can account for such substitutions. This makes it the preferred measure of inflation for the Federal Reserve. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

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