USD/CAD consolidates above 1.3510 with a positive bias
- USD/CAD attempts to continue the gains above 1.3510.
- US Dollar strengthens on market caution about the Fed’s interest rates trajectory.
- Improved WTI price could provide support for the Canadian Dollar.
USD/CAD struggles to extend gains on the second consecutive day, hovering above 1.3510 during the European session on Wednesday. The pair experiences upward support due to the risk aversion and improved US Treasury yields.
However, moderate economic data from the United States (US) could bolster the prevailing strength in the US Dollar (USD).
US Consumer Confidence released on Tuesday for September decreased to 103.0 from the reading of 108.7 in August. While Building Permits improved to 1.541M in August from 1.443M prior, falling short of the market expectation of 1.543M.
Moreover, the House Price Index month-month for July climbed to 0.8% compared to the market expectations of 0.5% from the previous rate of 0.4%.
Additionally, the Federal Reserve (Fed) is expected to raise policy rates through the end of the year as the US economy demonstrates resilience. This, in turn, boosts the US Treasury yields, which reinforces the strength of the US Dollar (USD).
The US Dollar Index (DXY) hovers around 106.30 by the press time, the highest level since December. The yield on the 10-year US Treasury note hovers below the highest level since October 2007, trading around 4.51% at the time of writing.
Furthermore, traders await the US Durable Goods Orders report to be released on Wednesday. Core Personal Consumption Expenditure (PCE) Price Index, the Fed's preferred measure of consumer inflation, is due on Friday. The annual rate is anticipated to reduce from 4.2% to 3.9%.
On the flip side, the USD/CAD currency pair could be influenced by the price movements of the US Dollar due to the absence of Canada’s macros during the week. Canadian Gross Domestic Product (GDP) will be eyed on Friday.
However, the recent improvement in West Texas Intermediate (WTI) oil prices could potentially limit the upside of the USD/CAD pair. This improvement in oil prices is supportive of the Canadian Dollar (CAD) because Canada is a significant oil exporter to the United States.
WTI price extends its gains on the second day, trading higher above $90.70 per barrel by the press time.
As a result, the CAD is often referred to as a commodity-linked currency, and rising oil prices tend to strengthen it. This dynamic may counterbalance the impact of USD price movements on the USD/CAD pair.