- The USD/CAD pair has shown a rally to reach 1.3360 despite the USD index correction.
- The BOC surprisingly raised interest rates because of the resilience of the Canadian economy.
- Oil rose to its three-day high of $73.20, while several state-run banks in China cut their lending rates.
Pair usd/cad The closing hours of the London session saw buying interest around 1.3340. The Canadian dollar is back near 1.3360 despite a strong recovery in oil prices and rising expectations for a further rate hike from the Bank of Canada (BoC).
S&P 500 futures maintained modest losses in the European session, reflecting a cautious mood in the markets. The risk profile has taken a hit as investors expect the Federal Reserve (Fed) to not tighten its monetary policy. Earlier, Fed Chairman Jerome Powell announced that further interest rate hikes are unlikely as tight credit conditions at regional US banks are preventing inflation from showing its true colors.
Dollar Index (DXY) is in continuous contraction since the first tick on Thursday. Broadly speaking, the dollar index is trading in a wide range this week in the absence of potential triggers. Investors gear up for US Consumer Price Index (CPI) data (May) to be announced on Tuesday.
The Canadian Dollar is struggling to hold on to the US Dollar despite a surprise rate hike announcement by the Bank of Canada (BOC). BoC Governor Tiff McCallum raised interest rates by 25 basis points (bp) to 4.75%. Given the resilience of the Canadian economy due to a strong labor market and consumer spending, current monetary policy does not remain tight enough to reduce stubborn inflation.
The BoC has left the door open for further interest rate hikes if inflation persists.
Meanwhile, the oil price hit its three-day high of $73.20 as several Chinese state banks cut their lending rates to support the economic recovery. It should be noted that Canada is the main exporter of oil to the United States and an increase in the price of oil supports the Canadian dollar.