The USD/CAD pair attracted some buying on Thursday, albeit struggled to capitalize on the move and the uptick faltered near the 1.2985 region. The pair now surrendered a major part of its intraday gains and was seen trading in neutral territory, just above mid-1.2900s during the early European session.
The Canadian dollar drew support from hotter-than-expected domestic consumer inflation figures released on Wednesday, which lifted bets for a 75 bps rate hike move by the Bank of Canada in July. Apart from this, a modest recovery in crude oil prices underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair amid subdued US dollar price action.
The downside, however, seems cushioned, at least for the time being, amid expectations that the Fed would retain its aggressive policy tightening path and again hike rates by 75 bps in July. Fed Chair Jerome Powell, during his testimony before the Senate Banking Committee, reaffirmed market expectations and said that the ongoing rate increases will be appropriate.
Powell added that Fed is strongly committed to bringing inflation back down and the pace of future rate increases will continue to depend on incoming data. Apart from this, the prevalent caution mood, amid growing concerns over a possible recession, offered some support to the safe-haven greenback. This, in turn, should limit any meaningful slide for the USD/CAD pair.
Market participants now look forward to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims and flash PMI prints. Apart from this, Fed Chair Jerome Powell's second day of testimony might influence the USD. Traders will further take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair.
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