USD/CAD Holds Strong near One-Week High despite Falling Oil Prices

Oh, snap! The USD/CAD pair is holding its own near a one-week high as oil prices take a major tumble. The Loonie is feeling the pressure and lending support to the pair, while a slight USD downtick is keeping things in check. But let’s be real, the setup is totally favoring the bullish traders right now.

Seems like the USD/CAD pair is in a bullish consolidation phase and is just chilling in a narrow range around the 1.3470-1.3475 region. Can you blame them for soaking up the sun in this high spot? I mean, they did just rebound solidly from the 1.3300 mark earlier this week, which was a two-month low.

The Loonie is taking a hit due to concerns that rising borrowing costs will slow economic growth and dent fuel demand. Plus, signs of cooling consumer inflation in Canada are also putting pressure on the commodity-linked currency. But the USD is not completely immune to this situation either, as a modest USD downtick is in play.

But don’t worry, the US Federal Reserve is here to save the day! Market participants expect the Fed to tighten its policy further, which should give a boost to US bond yields and limit the downside for the USD in the near term. And let’s not forget about those recent hawkish comments by several Fed officials and a rise in short-term inflation expectations. It’s like the bulls have finally found their groove!

The incoming US macro data is also pointing to a resilient economy, and the Fed’s Beige Book released on Wednesday showed that US inflation continued to run relatively high. All signs point to the Fed having more work to do amid easing fears of a full-blown banking crisis. And let’s not forget about the positive outlook for the USD/CAD pair thanks to the overall weaker tone in equity markets, which is benefiting the USD’s relative safe-haven assets. It’s like the stars have aligned for the USD/CAD pair to move upward!

Stay tuned for the release of weekly initial jobless claims, the Philly Fed manufacturing index, and existing home sales data during the early North American session. They will drive the USD demand and provide some impetus to the USD/CAD pair. And let’s not forget about those oil price dynamics and the Bank of Canada (BoC) Governor Tiff Macklem’s scheduled speech. It’s going to be a wild ride, so hold on tight!

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