USD/CAD trades with modest gains around 1.3500, eyes US PCE Price Index and Canadian GDP

The USD/CAD pair attracts fresh buying during the Asian session on Friday and for now, seems to have snapped a two-day losing streak. Spot prices struggle to capitalize on the move beyond the 1.3500 psychological mark, though remain well within the striking distance of over a one-week high touched on Wednesday

Crude Oil prices languish below a one-year peak set the previous day, which, in turn, is seen undermining the commodity-linked Loonie and acting as a tailwind for the USD/CAD pair. Expectations of supply increases by Russia and Saudi Arabia, to a larger extent, outweigh the optimistic view over a pickup in demand from China during its Golden Week holiday. This prompts traders to lighten their bullish bets around the black liquid, especially after this week's nearly 8% rally from the vicinity of mid-$88.00s.

Apart from this, the underlying strong bullish tone surrounding the US Dollar (USD) offers additional support to the USD/CAD pair. As investors look past Thursday's rather unimpressive US macro data, growing acceptance that the Federal Reserve (Fed) helps limit the USD corrective decline from its highest level since November 2022 touched on Thursday. In fact, the US central bank warned last week that sticky inflation in the US was likely to attract at least one more rate hike by the end of this year.

Hence, the market focus will remain glued to the release of the US Core PCE Price Index – the Fed's preferred inflation gauge – later during the early North American session. The data will play a key role in influencing market expectations about the next policy move by the Fed, which, in turn, will drive the USD demand and provide a fresh impetus to the USD/CAD pair. Traders on Friday will further take cues from the monthly Canadian GDP and Oil price dynamics to grab short-term opportunities.

In the meantime, th prospects for further policy tightening by the Fed remains supportive of elevated US Treasury bond yields, which should continue to act as a tailwind for the buck and the USD/CAD pair. Nevertheless, spot prices seem poised to register modest weekly gains for the first time in the previous three.

Technical levels to watch