USD/CAD surges on stronger US dollar

In the US trading session on Tuesday, the USD/CAD pair was able to surpass the 1.3500 mark. The pair is trading at 1.3520, up +0.49 at the time of writing. The US Dollar Index dominates the broader market, making it difficult for the oil-backed Canadian currency to gain momentum.

The second half of the week will be largely influenced by US data. The 1.3500 major handle for Tuesday has been decisively recaptured by the pair. A hawkish Fed and risk aversion that is stifling the market’s desire for riskier assets are supporting the US Dollar Index’s (DXY) surge higher across the board.

The US dollar is moving up and the broad US Dollar Index is at its best levels since late November. The American equivalent is still the undisputed leader on the charts, despite Tuesday’s anticipated increase in oil prices, which would typically support the Canadian.

The 10-year Treasury yield is staying over 4.5% as US Treasury yields approach multi-year highs, which is helping to strengthen the US dollar. A probable US government shutdown is worrying US markets more and more, significantly reducing risk appetite.

The data docket is noticeably CAD-light this week, which forces investors to concentrate almost exclusively on US data. The US Housing Price Index reading of 0.8% on Tuesday easily exceeded forecasts of 0.5% and doubled the prior reading of 0.4%.

The US Durable Goods Orders report will be released on Wednesday (forecast: -0.5%, prior -5.2%), and investors will be paying close attention to the US Gross Domestic Product (GDP) numbers that are scheduled to be released on Thursday. According to median market projections, the second quarter’s print will remain constant at 2.1% on an annualized basis.

The US Personal Consumption Expenditure (PCE) Price Index data will be released on Friday, capping out the trading week. PCE, the Federal Reserve’s (Fed) favoured indicator of US inflation, is anticipated to remain constant at 0.2% in August.

With Fed members already leaning towards the possibility of future rate hikes if inflation doesn’t settle down, a data beat might help the dollar gain even more ground.

In Tuesday’s trading session, the US dollar gained 0.3% against the Canadian dollar, breaking through the 1.3500 level and looking to continue beyond the 200-hour Simple Moving Average (SMA), which is now positioned close to 1.3480. Intraday bullish momentum may encounter a covering down from last week’s swing high near 1.3525, which serves as short-term resistance.