USD/CAD Edged Lower, Holding Steady Above 1.3750 Amid Lower Oil Prices

USD/CAD is facing some selling pressure on the first day of the new week and has eroded some of Friday’s strong gains to the 1.3785 area, its highest level since November 14. Spot prices are currently trading around the 1.3760-1.3755 range, but with the underlying strong bullish sentiment in the US Dollar (USD), any meaningful corrective decline for the pair still seems elusive.

Investors pushed back expectations for the Federal Reserve’s first rate cut from June to September after U.S. data last week showed inflation remained subdued. Additionally, market participants currently expect fewer rate cuts in 2024, compared to the three expected by the Fed. This remains supportive of a rise in U.S. Treasury yields, keeping the U.S. Dollar Index (DXY) hovering near its highest point of the year and should serve as a tailwind for USD/CAD.

Meanwhile, crude oil prices struggled to attract buyers despite Iran’s attack on Israel over the weekend, which raised the risk of a wider regional conflict and could affect oil supplies in the Middle East. This in turn would weaken the commodity-linked Canadian dollar and limit the downside for the USD/CAD pair. Therefore, any subsequent decline may still be regarded as a buying opportunity, and the decline will still be limited, and caution should be exercised before confirming that spot prices have formed a near-term top.

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