USD/CAD Surges Beyond 1.38000 Amid Heightened Risk Aversion

On Monday, the Canadian dollar (CAD) experienced a 0.10% decline against the US dollar (USD), driven by the latter’s strength.

Since December 27, 2023, USD/CAD has been on an upward trajectory, bolstered by escalating geopolitical tensions in the Middle East and diminishing expectations of a Federal Reserve (Fed) interest rate cut this summer. Robust US economic data have surpassed expectations, prompting investors to revise their rate cut forecasts downward. Consequently, traders now anticipate more rate reductions from the Bank of Canada (BOC) in 2024 compared to the Fed. However, the disparity is marginal, indicating that recent gains in USD/CAD have been predominantly fueled by geopolitical concerns. Any de-escalation in tensions between Israel and Iran could swiftly reverse this uptrend. Furthermore, crude oil prices have reached a six-month high, bolstering the Canadian economy and potentially nudging the BOC towards a less dovish monetary policy stance.

During Asian and early European trading sessions, USD/CAD continued its ascent. Traders should closely monitor two key events today. Firstly, the release of Canada’s inflation report at 1:30 p.m. UTC holds significant importance for CAD traders. Stronger-than-expected figures may trigger a correction in USD/CAD towards 1.37200, whereas weaker data could sustain the underlying bullish trend, propelling the pair higher towards 1.38400. Secondly, speeches by Fed officials, particularly Fed Chair Jerome Powell’s address at 5:15 p.m. UTC, are anticipated to provide insights into the Fed’s sentiment and interest rate trajectory, influencing USD/CAD’s movement further.

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