- USD/CAD remains depressed as elevated Crude Oil prices continue to underpin the Loonie.
- The Fed’s hawkish tilt and the US-Iran stalemate support the USD, limiting losses for the pair.
- Spot prices seem poised to post losses for the fourth week as traders look to the US ISM PMI.
The USD/CAD pair enters a bearish consolidation phase after touching a fresh low since March 11 during the Asian session on Friday, and currently trades around the 1.3575 region. Nevertheless, spot prices remain on track to register losses for the fourth straight week.
Crude Oil prices stall the previous day’s retracement slide from a nearly four-week top amid persistent geopolitical uncertainties due to stalled US-Iran peace talks. In fact, US President Donald Trump rejected an Iranian proposal to open the Strait of Hormuz and lift the blockade, while postponing nuclear issues to a later stage. Trump further said that he’s going to keep Iran under a naval blockade until the regime agrees to a deal that addresses US concerns about its nuclear program.
Moreover, reports suggest that the US is considering new military strikes on Iran, which acts as a tailwind for the black liquid. This, in turn, is seen underpinning the commodity-linked Loonie and capping the USD/CAD pair. Meanwhile, the US Dollar (USD) recovers slightly following the overnight slump to a one-and-a-half week low amid the US-Iran stalemate and the Federal Reserve’s (Fed) hawkish tilt. This offers some support to the currency pair and helps limit the downside.
The Fed’s decision on Wednesday to hold its key policy rate unchanged at 3.50%-3.75% saw three policymakers voting against the accommodative tone in the policy statement. Adding to this, the Advance US GDP report released on Thursday pointed to continued economic resilience, while the US Personal Consumption Expenditures (PCE) Price Index showed that inflation accelerated in March. The data reaffirms bets that the Fed could keep rates unchanged and supports the USD.
Traders, however, are still pricing in a small possibility that the US central bank will lower borrowing costs by the end of this year. The expectations, in turn, hold the USD bulls on the back foot, warranting some caution before positioning for any meaningful recovery for the USD/CAD pair. Traders now look forward to the release of the US ISM Manufacturing PMI for some impetus heading into the weekend.
