- USD/CAD has been struggling to register any meaningful recovery from multi-year lows.
- Hawkish BoC, bullish oil prices continued underpinning the loonie and capped the upside.
- A modest USD rebound might help limit the downside ahead of the critical US CPI report.
The USD/CAD pair edged lower through the first half of the European session and dropped to fresh daily lows, around the 1.2085-80 region in the last hour.
The pair continued with its struggle to register any meaningful recovery and has been oscillating in a range since the beginning of this week, consolidating its recent fall to near four-year lows. The divergence in monetary policies adopted by the Bank of Canada and the Federal Reserve was seen as a key factor that continued acting as a headwind for the USD/CAD pair.
The BoC reduced its weekly asset purchases at the April policy meeting and brought forward the guidance for the first interest rate hike to the second half of 2022. Apart from this, the underlying bullish tone in crude oil prices further underpinned the commodity-linked loonie. This, in turn, kept a lid on the USD/CAD pair's attempted recovery earlier this Wednesday.
On the other hand, the prevalent risk-off mood benefitted the safe-haven US dollar, though failed to lend support to the USD/CAD pair. The global risk sentiment took a hit amid escalating conflict between Israel and Palestine. Adding to this, speculations that rising inflation might force the Fed to hike rates earlier than anticipated further dented investors' confidence.
Hence, the market focus will be squarely on the latest US consumer inflation figures, due for release later during the early North American session. The data will give investors a better idea of where inflation is headed amid the recent surge in commodity prices amid worries that maybe inflation is something more than the Fed's view of being transitory.
This, in turn, will influence market expectations over the Fed's policy outlook, which will play a key role in driving the greenback in the near term. Traders might further take cues from the EIA's weekly US crude oil inventories report. Apart from this, the broader market risk sentiment might further contribute to producing some trading opportunities around the USD/CAD pair.