Earlier on Friday, the USD/CAD pair touched weekly high level of 1.3139 but lost its upside momentum and reversed sharply to test session low level of 1.3055 after the release of better-than-expected Retail sales data and slightly higher CPI. The pair, however, has managed to recover some of its lost ground and is currently trading back around 1.3100 handle.
Maintaining its high degree of correlation with crude oil prices, the initial leg of weakness was led by recovery in crude oil prices from over two-month low levels. The fall got further aggravated by the upbeat Canadian economic releases. Moreover, decreasing yield differential between US and Canadian 10-year treasuries also supported the corrective slide.
Meanwhile, renewed weakness in crude oil prices and a sudden rise in yield differential assisted the pair to rebound from lower levels. Adding to this, increasing prospects of Fed rate-hike, as depicted by Fed Fund future, limited further selling pressure. The CME group's Fed Fund future is pointing to 40% probability of at least 25 bps hike in the Federal Reserve’s benchmark interest-rate December this year.
Summing it all, any subsequent selling pressure in crude oil and any further rise in Fed rate-hike expectations would be the key factors that would support continuation of the pair’s upward trajectory in the near-term.
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