20 Nov 2024

• USD/CAD consolidates in a range near a one-week low amid mixed fundamental cues.
• Hotter Canadian CPI tempers bets for a bigger BoC rate cut and underpins the CAD.
• Rebounding US bond yields revive USD demand and offer some support to the pair.

The USD/CAD currency pair is currently finding support around the mid-1.3900s, marking a one-week low reached during the Asian trading session on Wednesday. At this point, the pair appears to have halted its retracement from the highest levels observed since May 2020. However, spot prices are struggling to gain significant momentum, which necessitates caution among bullish traders due to mixed fundamental signals.

Recent data released on Tuesday indicated that Canada's annual inflation rate unexpectedly increased to 2.0% in October, prompting investors to reassess their expectations regarding a substantial rate cut by the Bank of Canada (BoC) in December. This development is perceived as providing some support to the Canadian Dollar (CAD) while simultaneously acting as a headwind for the USD/CAD pair. Nevertheless, the ongoing decline in Crude Oil prices continues to limit any substantial appreciation of the commodity-linked Loonie.

Despite the potential for supply disruptions stemming from heightened tensions in the Russia-Ukraine conflict, indications of rising US stockpiles have not aided Crude Oil prices in sustaining a two-day recovery from a two-month low reached on Monday. The American Petroleum Institute (API) reported a significant increase in US inventories, rising by 4.75 million barrels in the week ending November 15, which suggests an uptick in supply from the world's largest oil producer.

Additionally, the emergence of some dip-buying in the US Dollar (USD) is likely to restrict any considerable downside for the USD/CAD pair. Investors appear increasingly confident that the policies of US President-elect Donald Trump will stimulate economic growth and reignite inflationary pressures. This outlook could deter the Federal Reserve (Fed) from implementing interest rate cuts, potentially leading to a rise in US Treasury bond yields and bolstering demand for the USD.

Looking ahead, investors are keenly awaiting speeches from key members of the Federal Open Market Committee (FOMC) for insights regarding the future trajectory of interest rates. These discussions are expected to significantly influence US bond yields and the USD during the North American trading session. Furthermore, traders will be attentive to the official US Oil inventory data for additional guidance.