USD/CAD depreciates to near 1.3750 on improved risk sentiment amid weaker crude Oil

• USD/CAD loses ground due to the subdued US Dollar on Thursday.
• Lower US Treasury yields put pressure on the Greenback.
• The decline in the WTI price may limit the advance of the Canadian Dollar.

USD/CAD extends its losses for the second consecutive session on Thursday, trading around 1.3750 during the Asian session. The pair follows the retreat from the five-month high of 1.3846 reached on Tuesday.

Meanwhile, the US Dollar Index (DXY) loses ground, primarily influenced by subdued US Treasury yields. DXY falls to near 105.90 with the 2-year and 10-year yields on US Treasury bonds stand at 4.92% and 4.57%, respectively, by the press time. This decline in the US Dollar exerts pressure on the USD/CAD pair.

The US Dollar faced challenges after the neutral remarks from the Federal Reserve’s (Fed) official. Fed Governor Michelle Bowman remarked on Wednesday that progress in inflation is slowing, with a potential stall. Bowman also noted that monetary policy is currently restrictive, and its adequacy will be evaluated over time.

Furthermore, Federal Reserve Bank of Cleveland President Loretta Mester acknowledged that inflation has exceeded expectations. She emphasized that the Fed needs more assurance before confirming the sustainability of 2% inflation.

On the flip side, the downward trend in crude Oil prices might constrain the Canadian Dollar's (CAD) upward momentum, considering Canada's status as the largest Oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price dips to nearly $82.30 per barrel at the time of writing. Market concerns persist regarding demand for this year, particularly in light of indications suggesting the potential avoidance of a broader conflict in the Middle East.

The advance of the Canadian Dollar could be short-lived due to the dovish sentiment surrounding the Bank of Canada (BoC), which could mitigate losses in the USD/CAD pair. There are expectations for a 25 basis points (bps) rate cut from the BoC in June. This sentiment is reinforced by the mixed Canadian inflation data released on Tuesday.