Title: USD/CAD Rebounds from Session Lows to Trade at 1.3858 Amid Market Volatility
Originally reported by Kathy Jenkins for FXDailyReport.com
Expanded and updated for analysis and clarity
On June 5, 2024, the USD/CAD currency pair staged a notable recovery, reversing from earlier session lows to hover around the 1.3858 level as North American markets opened. The pair’s rebound comes in the wake of an overall strengthening of the US dollar amid shifting expectations for Federal Reserve interest rate policy. Meanwhile, the Canadian dollar remained under modest pressure due to softening oil prices and cautious sentiment surrounding the trajectory of Canadian monetary policy.
Key Highlights:
– USD/CAD rebounded from intra-day lows and moved up sharply toward 1.3858 during the North American session.
– Weakness in crude oil prices weighed on the Canadian dollar.
– Market participants await further clues on U.S. and Canadian interest rate outlooks.
– Technical indicators suggest the pair remains in a broader uptrend, despite near-term pullbacks.
## Fundamental Drivers Behind the Rebound
Several fundamental factors contributed to the price action witnessed in USD/CAD on June 5.
### 1. U.S. Dollar Gains Support from Hawkish Fed Rhetoric
The recent rebound in the US dollar was largely driven by hawkish commentary from Federal Reserve officials, who have expressed caution about cutting interest rates too soon. Recent speeches by various Fed members have emphasized:
– The need for more consistent evidence of declining inflation before initiating rate cuts.
– Persistence in core inflation indicators, such as the Core Personal Consumption Expenditures (PCE) Index.
– The robust state of the US labor market, giving the Fed room to keep rates elevated for longer.
Despite earlier forecasts that the central bank might cut rates by mid-2024, this tone has shifted expectations further down the line. According to the CME FedWatch Tool, the probability of a rate cut in September 2024 has declined to below 50%, down from over 70% just a few weeks ago.
This cautious stance supports bond yields and the US dollar, weighing on riskier and commodity-linked currencies like the Canadian dollar.
### 2. Canada’s Central Bank Decision – A Divergence in Policy
The Bank of Canada (BoC) announced a 25 basis point interest rate cut earlier this week, reducing its overnight rate from 5.00% to 4.75%. This marks the first rate cut by a G7 central bank in the current cycle. BoC Governor Tiff Macklem cited softer inflation and weakening consumption trends as primary reasons behind the move.
This contrasts starkly with the Fed’s more hawkish stance and has contributed to the current divergence between USD and CAD. Investors are now anticipating the possibility of further cuts by the BoC later in the year.
– Canadian consumer spending has shown signs of deceleration, with households facing evidently higher debt service costs.
– The BoC’s preferred inflation gauges, including core CPI measures, have shown sustained declines toward the 2% target.
– Canadian GDP data released recently showed a contraction in Q1 2024, further supporting the case for monetary easing.
This divergence in central bank policies is fueling upward momentum in USD/CAD.
### 3. Oil Prices and Canadian Dollar Sensitivity
The Canadian dollar is closely tied to crude oil prices, given that Canada is one of the world’s largest oil exporters. A decline in oil prices tends to weaken the CAD because it implies lower revenues from energy exports.
On June 5, benchmark West Texas Intermediate (WTI) crude oil fell by over 2% to trade below the $73 per barrel mark. The dip followed major oil producers’ recent announcements from the OPEC+ meeting, where plans to gradually unwind voluntary supply cuts starting October 2024 were confirmed.
Markets had hoped for deeper or extended output cuts to support prices amid a potential global supply glut and slowing demand.
Read more on USD/CAD trading.