USD/CAD sticks to modest gains above 1.3900 amid sliding Oil prices, USD uptick
USD/CAD attracts some buyers amid a combination of factors, though it lacks bullish conviction.
Sliding Crude Oil prices undermine the Loonie and support the major amid a modest USD uptick.
Divergent Fed-BoC policy expectations could act as a headwind for the pair and warrant caution.
The USD/CAD pair trades with a positive bias for the second straight day on Monday and climbs to the 1.3920-1.3925 area during the Asian session. The uptick is sponsored by a combination of factors, though the lack of follow-through buying warrants caution for aggressive bullish traders.
Crude Oil prices kick off the new week on a weaker note in reaction to the OPEC+ surprise decision on Saturday to raise output by 548,000 barrels per day in August. This raises concerns about oversupply and weighs on the black liquid, which, in turn, is seen undermining the commodity-linked Loonie. The US Dollar (USD), on the other hand, attracts some safe-haven flow on the back of fresh Israeli strikes on Yemen in almost a month and turns out to be another factor acting as a tailwind for the USD/CAD pair.
Any meaningful USD appreciation, however, seems elusive in the wake of worries that US President Donald Trump's massive tax-cut and spending bill would worsen America’s long-term debt problems. This, along with bets that the Federal Reserve (Fed) will resume its rate-cutting cycle in the near future, should keep a lid on the USD. Apart from this, diminishing odds for more interest rate cuts by the Bank of Canada (BoC) should benefit the Canadian Dollar (CAD) and contribute to capping the USD/CAD pair.
Moving ahead, there isn't any relevant market-moving economic data due for release on Monday, either from the US or Canada, leaving spot prices at the mercy of the USD and Crude Oil price dynamics. Meanwhile, the market focus will remain glued to the release of FOMC meeting minutes on Wednesday. Investors will look for fresh cues about the Fed's rate-cut path, which, in turn, will play a key role in influencing the USD demand and providing some meaningful impetus to the USD/CAD pair.
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