- USD/CAD holds positive ground near 1.3685 on the rebound of USD on Tuesday.
- Fed’s Barkin noted the current rate level should cool the economy enough to bring down inflation to the 2% goal.
- The BoC potentially getting closer to rate cuts relative to the Fed, which might drag the CAD lower.
The USD/CAD pair gains traction around 1.3685 during the early European trading hours on Tuesday. The rebounds of Greenback and the decline of oil prices provide some support to the pair. Investors will take more cues from the Canadian Ivey Purchasing Managers Index (PMI) for April, due later in the day.
Recent US labor market data and comments from Federal Reserve (Fed) officials have triggered the speculation of rate cuts. Richmond Fed President Thomas Barkin said on Monday that the current interest rate level should cool the economy enough to bring down inflation to the Fed's 2% goal. New York Fed President John Williams noted that "eventually" the US Fed will cut interest rates, although he did not give a time frame.
Meanwhile, the US Dollar (USD) strengthens broadly amid the uncertainties surrounding the geopolitical tensions in the Middle East, which boost the safe-haven currencies like the Greenback. Israel's war cabinet voted to continue the military attack on Hamas, and Israeli troops launched strikes on Gaza's southernmost city on Monday, hours after Hamas announced it would accept terms based on a cease-fire proposal by Egyptian and Qatari mediators, per New York Times.
On the Loonie front, an FX strategist from CIBC Capital Markets expects that there are going to be some headwinds for the Canadian Dollar (CAD) in the near term as the Bank of Canada (BoC) potentially gets closer to rate cuts relative to the Fed. This, in turn, is likely to cap the downside of USD/CAD put for the time being. Apart from this, the decline in oil prices near two-month lows exerts some selling pressure on the commodity-linked Loonie as Canada is the leading exporter of oil to the United States.
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