USD/CAD sits near two-week high, just below mid-1.3700s ahead of Fed’s Powell

The USD/CAD pair gains some positive traction for the third successive day on Thursday and maintains its bid tone, near a two-week high through the early part of the European session. Spot prices currently trade around the 1.3730 region, up 0.10% for the day, and remain well supported by a combination of factors.

Softer consumer inflation figures released from Canada on Tuesday forced market participants to trim bets for another rate hike by the Bank of Canada (BoC). Apart from this, the emergence of some intraday selling around Crude Oil prices undermines the commodity-linked Loonie. This, along with a bullish US Dollar (USD), is seen acting as a tailwind for the USD/CAD pair and supports prospects for a further near-term appreciating move.

OPEC+ is reportedly not planning to take any immediate action on the Iranian call for Islamic countries to impose an oil embargo and other sanctions on Israel over the war with Hamas in Gaza. Furthermore, the Biden administration on Wednesday eased sanctions on Venezuela's oil sector to produce and export oil to its chosen markets for the next six months without limitation. This eases global supply concerns and weighs on the black liquid.

Adding to this, worries about economic headwinds stemming from rapidly rising borrowing costs, which could dent fuel demand, further exert pressure on Oil prices. That said, geopolitical tensions in the Middle East, along with a larger-than-expected inventory draw in the US – the world's biggest oil consumer – could act as a tailwind for the commodity and help limit any meaningful downfall in the near term.

The USD, meanwhile, continues to draw support from growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer. The outlook leads to an extended selloff in the US fixed-income market, pushing the yield on the benchmark 10-year government bond to a fresh 16-year peak and closer to the 5% psychological mark. This, along with the prevalent risk-off environment, continues to lend support to the safe-haven Greenback.

The aforementioned fundamental backdrop seems tilted in favour of the USD bulls and suggests that the path of least resistance for the USD/CAD pair is to the upside. Investors, however, might refrain from placing aggressive bets ahead of Fed Chair Jerome Powell's speech later during the US session. In the meantime, the US macro data – Weekly Initial Jobless Clams, the Philly Fed Manufacturing Index and Existing Home Sales data – might provide some impetus.

Technical levels to watch