- USD/CAD appreciates due to the prevalent hawkish sentiment surrounding the Fed to prolong its higher interest rate.
- Fed’s Kashkari believes interest rates to stay unchanged for an extended period.
- The lower WTI price weakens the Canadian Dollar as Canada is the largest Oil exporter to the US.
The USD/CAD pair continues to advance for the second consecutive session, hovering around 1.3750 during the Asian trading hours on Wednesday. This upward movement is attributed to the stronger US Dollar (USD), fueled by the prevailing hawkish sentiment surrounding the Federal Reserve (Fed) and expectations of sustained higher interest rates. Additionally, comments from Minneapolis Fed President Neel Kashkari on Tuesday contributed to the strength of the USD by suggesting a potential for rate hikes.
According to Reuters, President Kashkari stated that the most likely scenario is for interest rates to remain unchanged for an extended period. Although rate hikes are not the primary expectation, they are not entirely ruled out.
Meanwhile, the Canadian Dollar (CAD) weakened against the US Dollar, influenced by the strength of the latter impacting crude Oil prices, thereby affecting the USD/CAD pair. This correlation holds significance due to Canada's position as the largest Oil exporter to the United States (US).
West Texas Intermediate (WTI) crude Oil price extends losses for the second consecutive day, trading around $77.80 per barrel, by the press time. Oil traders will shift their focus to the US Crude Oil Stocks Change due later on Wednesday. Energy Information Administration (EIA) is expected to report a decline in a weekly measure of the change in the number of barrels in stock of crude Oil and its derivates.
Furthermore, despite higher-than-expected Ivey Purchasing Managers Index (PMI) figures from Canada, the CAD failed to gain traction. Canada's seasonally-adjusted Ivey PMI for April climbed to 63.0 from 57.5, surpassing the forecast of 58.1. This marked the ninth consecutive monthly increase, reaching its highest level in two years.
Looking ahead, Thursday's Financial System Review from the Bank of Canada (BoC) is anticipated to prompt market movements. The Financial System Review provides a detailed assessment of developments in the financial system and an analysis of policy directions within the financial sector.
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