**USD/CAD Holds Steady Above 1.3800, Struggles to Gain Upside Momentum Amid Broad USD Weakness**
*By Harshal Barot, originally reported for FXStreet*
The USD/CAD currency pair is currently trading above the 1.3800 level, but with a notable lack of bullish commitment. Despite the pair’s resilience above this psychological level, the overarching theme in global markets remains a weakened US dollar. This has prevented USD/CAD from securing additional gains, as traders remain cautious amid mixed macroeconomic data from both the United States and Canada.
As of the latest price action, the pair has maintained a consolidative pattern, showing neither strong bullish follow-through nor a sharp reversal. Price movements have been subtle, and momentum appears muted, reflecting broader indecision in the forex marketplace influenced by multiple economic and geopolitical factors.
## Current Market Behavior and Price Action
The USD/CAD pair traded in a narrow range during the Asian session on Monday, reflecting a lack of strong directional bias. Currently:
– The pair is sustaining itself above the psychological mark of 1.3800.
– Despite holding firm, it has not attracted significant buy-side momentum due to:
– A broadly softer US Dollar.
– Wavering US Treasury yields.
– Mixed expectations around future interest rate decisions from the Federal Reserve.
During the overnight session, USD/CAD slightly eased from its recent high of around 1.3844 but continued to trade within a tight range. The inability of the pair to break higher has primarily been due to declining demand for the USD, reflecting changing dynamics in global financial sentiment.
## Key Drivers Weighing on the USD
The US Dollar, as tracked by the US Dollar Index (DXY), has weakened recently after failing to sustain previous gains. Several factors are contributing to the USD softness:
– **Moderating US Treasury Yields:**
– The benchmark 10-year Treasury yield has dropped from multi-year highs, partly due to dovish commentary from Federal Reserve officials regarding the future path of interest rates.
– **Mixed Fed Communication:**
– While the Fed has left open the possibility of further rate hikes, recent commentary has leaned dovish, weakening the USD’s defensive appeal.
– Officials like Fed Governor Christopher Waller and Dallas Fed President Lorie Logan indicated a cautious stance, suggesting the Fed is not in a hurry to raise rates further unless inflation data warrants it.
– **Economic Data and Inflation Concerns:**
– The US core Personal Consumption Expenditures (PCE) price index — the Fed’s preferred inflation gauge — rose by 0.3% in April, translating to a 2.8% annual growth rate, matching expectations.
– Consumer spending in April edged up just 0.2%, while real personal income remained lackluster.
– Signs of softening underlying economic activity have weighed on investor sentiment.
– **Diminished Safe-Haven Demand:**
– With volatility reduced in equities and market optimism returning, demand for the USD as a safe-haven currency has waned.
## Canadian Dollar Performance and Domestic Factors
While the USD has struggled, the Canadian Dollar (CAD) has remained relatively stable, but not aggressively strong. Several domestic factors are influencing the loonie’s behavior:
– **Oil Prices:**
– As a commodity-linked currency, the Canadian Dollar is sensitive to the price of crude oil.
– West Texas Intermediate (WTI) crude oil prices are attempting a recovery above $77.00 per barrel, boosted by prospects of falling US crude inventories and improved fuel demand at the onset of the summer driving season.
– Rising oil prices generally support the Canadian economy through increased energy exports, thus supporting CAD.
– **Bank of Canada (BoC) Rate Decision Expectations:**
– The BoC is set to announce its interest rate decision this week on Wednesday.
– Markets have priced in a potential 25 basis-point
Read more on USD/CAD trading.