The USD/CAD currency pair has retreated from an eight-month peak of 1.3849, trading around 1.3820 during the Asian trading session on Monday. This pullback is attributed to the strengthening Canadian Dollar (CAD) and the subsequent downward pressure on the USD/CAD pair.
The recent rise in oil prices has provided support to the Canadian Dollar. As of the latest updates, West Texas Intermediate (WTI) crude oil is trading around $76.80 per barrel. The increase in oil prices is driven by geopolitical tensions in the Middle East, particularly following a rocket attack in the Israeli-occupied Golan Heights. The rocket strike, which resulted in the deaths of 12 teenagers and children on Saturday, has been attributed to the Lebanese armed group Hezbollah by Israel and the United States (US).
In response to the attack, Israel’s security cabinet has authorized Prime Minister Benjamin Netanyahu’s government to determine the “manner and timing” of a retaliatory action.
Meanwhile, the US Dollar (USD) is facing headwinds due to cooling inflation and easing labor market conditions in the United States. These factors have led to growing expectations of multiple rate cuts by the Federal Reserve (Fed) this year, starting in September.
Recent data has supported these expectations. The US Personal Consumption Expenditures (PCE) Price Index, released on Friday, showed a modest increase in inflation for June. The PCE Price Index rose by 2.5% year-over-year in June, down from 2.6% in May, aligning with market forecasts. On a monthly basis, the index increased by 0.1% following no change in May.
Core PCE inflation, which excludes food and energy prices, also saw a rise to 2.6% in June, matching the increase seen in May and surpassing the anticipated 2.5%. Month-over-month, the Core PCE Price Index increased by 0.2% in June, up from 0.1% in May.
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