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The relentless USD buying pushed USD/CAD to a fresh multi-week high on Thursday. The disappointing release of the US GDP capped the upside for the USD and spot prices. Softer crude oil prices, aggressive Fed rate hike bets support prospects for further gains.
The USD/CAD pair trimmed a part of its intraday gains during the early North American session and was last seen trading around the 1.2855-1.2860 region, just a few pips below the highest level since March 9.
The pair attracted fresh buying near the 1.2800 mark on Thursday and prolonged its recent strong rally witnessed over the past one week or so amid the relentless US dollar buying. Investors seem convinced that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation and have been pricing in a 50 bps rate hike at the upcoming meeting on May 3-4.
The markets also expect the US central bank to continue tightening its monetary policy when it meets again in June and July and ultimately lift rates to around 3.0% by the end of the year. The USD, however, eased a bit from the five-year peak following the disappointing release of the US GDP report, which showed that the economy unexpectedly contracted by 1.4% during the first quarter.
That said, additional details revealed that the GDP Price Index accelerated to 8% in Q1 and reaffirmed the prospects of rapid Fed rate hikes. This, along with a fresh leg up in the US Treasury bond yields, acted as a tailwind for the buck. On the other hand, a softer tone around crude oil prices undermined the commodity-linked loonie and offered additional support to the USD/CAD pair.
This, in turn, favours intraday bulls and supports prospects for a move back towards testing the YTD high, around the 1.2900 mark touched in March. Some follow-through buying will mark a fresh bullish breakout and set the stage for a further near-term appreciating move for the USD/CAD pair. This, in turn, suggests that any meaningful pullback might still be seen as a buying opportunity.
