USD/CAD Retreats Amid Divergent Economic Indicators

The USD/CAD pair retraced from a recent five-month high of 1.3846, hovering around 1.3800 during European trading hours on Wednesday. While a minor decline in the US Dollar (USD) contributed to the pair’s pullback, the US Dollar Index (DXY) remains near its recent peak, reflecting overall strength in the greenback.

Federal Reserve Chair Jerome Powell’s hawkish comments, indicating a prolonged period before reaching the 2% inflation target, likely bolstered the USD. However, concerns over global oil demand and lower crude oil prices weighed on the Canadian Dollar (CAD), given Canada’s significant oil exports to the United States.

West Texas Intermediate (WTI) crude oil prices dipped to nearly $84.40 per barrel amid worries about sluggish economic growth in China and an anticipated increase in US commercial stockpiles. Heightened tensions in the Middle East, while normally supportive of oil prices, have been overshadowed by concerns about weakening global demand.

Additionally, Canadian inflation data suggested potential easing of borrowing conditions by the Bank of Canada (BoC) in its upcoming June meeting. The Consumer Price Index (CPI) rose by 0.6% month-on-month in March, slightly below expectations but higher than the previous increase. However, Core CPI year-on-year (YoY) grew at a slower pace of 2.0%, indicating sustained moderation and potentially influencing the BoC’s monetary policy decisions.

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