USD/CAD Rises To Around 1.3750 As Oil Prices Fall

USD/CAD gained for the third consecutive session, trading around 1.3760 in the European session on Tuesday. The U.S. dollar (USD) remained strong as investors took a cautious stance ahead of the Federal Reserve (Fed) interest rate decision scheduled for Wednesday.

The Fed is expected to keep interest rates steady between 5.25%-5.50% to curb inflation and achieve its 2% target. In addition, the U.S. headline and core consumer price index (CPI) are expected to rise by 3.4% and 3.5% year-on-year in May, respectively.

Strong U.S. employment data in May reduced the probability of two rate cuts by the Federal Reserve in 2024. According to the CME FedWatch tool, the probability of the Fed cutting interest rates by at least 25 basis points in September has dropped to nearly 49.0% from 59.5% a week ago.

On the Canadian dollar front, falling crude oil prices put pressure on the commodity-linked Canadian dollar as Canada is the largest oil exporter to the United States. At the time of writing, the price of West Texas Intermediate (WTI) crude oil was hovering around $77.30 per barrel.

Expectations of increased fuel demand this summer supported crude oil prices. “While the broader macro picture remains less optimistic than in previous weeks, expectations for summer demand are supportive of prices, so futures are moving higher,” analysts at energy consultancy Gelber and Associates noted, according to Reuters.

In Canada, the unemployment rate rose to a more than two-year high of 6.2% in May. However, the economy added more jobs than expected and wage growth also improved significantly. Bank of Canada Governor Tiff Macklem will speak at the Montreal 2024 conference on Wednesday and participate in a panel discussion on inflation, so traders may keep an eye on him.

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