The USD/CAD currency pair extended its upward trend for the ninth consecutive day, climbing to the 1.3785-1.3790 range during the Asian session on Monday. This marks its highest level since August 7. The surge is driven by a strong US Dollar (USD) and falling Crude Oil prices, which tend to weaken the commodity-linked Canadian Dollar (Loonie).
The USD Index (DXY), which measures the Greenback against a basket of currencies, is nearing a two-month high reached last Thursday. This increase comes amid growing expectations for a less aggressive approach to policy easing by the Federal Reserve (Fed). Currently, markets are anticipating more than a 90% likelihood that the US central bank will reduce borrowing costs by only 25 basis points (bps) in November. This outlook has kept US Treasury bond yields elevated, further supporting the Greenback and benefiting the USD/CAD pair.
On the other hand, Crude Oil prices opened the week with a bearish gap following the release of softer inflation data from China over the weekend. This data indicated a continuing trend of deflation, raising concerns about fuel demand. Additionally, disappointment regarding China’s fiscal stimulus plans has overshadowed positive Canadian job data from Friday, leading investors to reduce their expectations for a larger rate cut by the Bank of Canada (BoC). As a result, this has put pressure on the Canadian Dollar (CAD) and provided support for the USD/CAD pair.
Looking ahead, it remains uncertain whether buyers will continue to capitalize on this momentum or choose to take profits before the Canadian consumer inflation figures are released on Tuesday. Meanwhile, the risk of escalating geopolitical tensions in the Middle East and concerns over supply disruptions in this crucial region may limit losses in Crude Oil prices. This could, in turn, prevent CAD bears from making new bets and cap the USD/CAD pair’s movement amid thin trading volumes due to holidays in the US and Canada.
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