The USD/CAD pair is seeing some buying around the 1.3650 region on Tuesday and has maintained its modest intraday gains into the early part of the European session. However, prices have struggled to capitalize on the move and have retreated a few pips from the 1.3700 level, which was touched earlier as a new daily high.
Oil prices have fallen to a 15-month low amid concerns about a global economic slowdown, which is weighing on demand for fuel. This is also putting downward pressure on the Canadian dollar, known as the “loonie,” and helping to boost the value of the US dollar against the Canadian dollar. However, there are a number of factors limiting the upside potential of the US dollar at the moment.
The news that UBS will rescue Credit Suisse in a $3.24 billion deal has helped to ease fears of widespread contagion risk and has boosted investors’ confidence. This is evident from the generally positive tone around the equity markets. In addition, expectations that the Federal Reserve will soften its hawkish stance to prevent any further economic pressure from high borrowing costs are further contributing to capping the safe-haven Greenback. In fact, the current market pricing indicates a greater chance of a 25 bps Fed rate hike in March.
Many market participants believe that the US central bank may cut rates at some point during the second half of the year. This speculation has been fueled by the recent failures of two mid-size US banks, Silicon Valley Bank and Signature Bank. If this trend continues, it could act as a headwind for US bond yields and discourage traders from taking aggressive bullish positions before the key central bank event risk (the Fed’s monetary policy announcement on Wednesday).
In the meantime, traders will be focused on the release of the latest Canadian consumer inflation figures, due later during the early North American session. The data, along with Oil price dynamics, will influence the Canadian Dollar and provide some impetus to the USD/CAD pair. Apart from this, the US economic docket – featuring Existing Home Sales data – will also be looked upon to grab short-term opportunities.