USD/CAD clings to 1.3800 after retreating from its five-month highs

• USD/CAD pulls back from the high level of 1.3846, which has not been seen since mid-November.
• The US Dollar may strengthen further on the likelihood of the Fed extending its tight monetary policy.
• The lower WTI price could limit the advance of the Canadian Dollar.

USD/CAD retreats from a five-month high of 1.3846 reached on Tuesday. The pair trades around 1.3800 during the European hours on Wednesday. The minor decline in the US Dollar (USD) adds to the downward pressure on the USD/CAD pair.

However, the US Dollar Index (DXY) remains close to its five-month peak of 106.51 achieved on Tuesday. At the time of writing, the 2-year and 10-year yields on US Treasury bonds stand at 4.94% and 4.63%, respectively.

The hawkish remarks from the Federal Reserve Chair Jerome Powell, could have supported the US Dollar (USD). According to Reuters, Powell remarked that recent data suggests minimal advancement in inflation this year, implying a prolonged period before reaching the 2% target.

The lower crude Oil prices weaken the Canadian Dollar (CAD), given that Canada is the largest oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price dips to nearly $84.40 per barrel, at the time of writing.

The concerns over Oil supply stemming from heightened tensions in the Middle East have been overshadowed by worries about global demand. Sluggish economic growth in China and the anticipated rise in US commercial stockpiles have heightened concerns regarding the global demand for crude Oil

The Canadian inflation data has provided support for the Bank of Canada (BoC) to contemplate easing borrowing conditions in its upcoming June meeting. Particularly, the closely monitored core inflation indicator exhibited signs of sustained moderation, which may influence the BoC's decision-making regarding monetary policy adjustments.

Consumer Price Index (CPI) rose by 0.6% MoM, lower than the expected 0.7% in March but higher than the previous increase of 0.3%. Meanwhile, Core CPI (YoY) increased by 2.0% at a slower pace compared to the previous rise of 2.1%.