USD/CAD rebounds on stronger US dollar, Oil price

After a two-day recovery from its lowest points since mid-February, the USD/CAD steadily climbs upward. The US dollar applauds hawkish Fed expectations and optimistic yields to continue the recovery from the previous week. The present oil price is affected by the stronger dollar, concerns about the economy’s recovery, and apprehension over important China statistics.

Markets are anticipating the Canada CPI as well as the statements made by Governor Macklem of the Bank of Canada. The bulls in the pair pause near the round number of 1.3400 as they wait for important Canadian inflation data and Governor Tiff Macklem of the Bank of Canada (BoC) to speak. The pair recovered from its lowest points since mid-February over the past two days.

When looking for cues, the broad rebound of the US dollar, supported by higher US Treasury bond yield and hawkish Fed wagers, along with the decline in the price of WTI crude oil, Canada’s principal export, may be considered the main drivers.

The NY Empire State Manufacturing Index increased to 10.8 on Monday, breaking a four-month downward trend and reaching its highest point since July of last year. In addition, the housing market index for the US National Association of Home Builders (NAHB) increased for the fourth consecutive month in April, rising to 45 compared to the preceding and projected reading of 44.

Thomas Barkin, president of the Richmond Fed, added that he wants to see further proof that inflation is returning to the target range. The decision-maker also mentioned that he is comforted with what he is observing in the banking industry.

US Dollar Index (DXY) extended its recovery from a one-year low on Friday as encouraging US data and hawkish Fed conversations boosted the likelihood of another Fed rate hike in May and a decline in market betting that a rate cut will occur later in 2023. The US 10-year and two-year debt coupons printed a three-day increase to 3.60% and 4.20%, respectively. The same may be true for the US Treasury bond yields.

WTI Crude Oil, on the other hand, fell almost 2.0% to its lowest levels in a week and was pressed close to $80.85 at press time because to hawkish Fed bets and a stronger US dollar, which are posing hurdles to the demand for energy. The most recent scepticism regarding China’s economic recovery may also be putting downward pressure for crude oil.

The Consumer Price Index (CPI) for Canada for March and the BoC CPI for the same month will be crucial indicators to keep an eye on going forward because BoC Governor Tiff Macklem demonstrated her willingness to continue the trajectory of rate hikes if necessary. Nevertheless, BoC Governor Macklem, who is scheduled to speak later in the day, will be widely watched for any new inspiration. It will also be crucial to keep an eye on the US Housing Starts and Building Permits for March.