USD/CAD edges up to levels right above 1.3930 as markets brace for US CPI data.
The US Dollar is drawing support from higher demand for safety as hopes of a swift end to the US-Iran war fade.
Canadian Dollar dips remain shallow amid rising Oil prices.
Canadian Dollar (CAD) ticks down from two-month highs as the US Dollar (USD) firms up across the board, with investors bracing for the US Consumer Price Index (CPI) report due later in the day. The USD/CAD pair has gained about 15 pips on Wednesday, returning above 1.3930, but the broader trend remains bearish after losing more than 1% in a bit over two weeks.
Investors are cutting back US short positions across the board on Wednesday, bracing for the US consumer inflation figures, which are expected to provide further insight into the Federal Reserve’s (Fed) near-term monetary policy path.
Analysts at ING note that markets are already positioned for “a softer price story” and that “we would probably need to see a 0.1% month-on-month read on core inflation (...) to drag market pricing of a September Fed rate hike away from a 50% probability in favour of no change,” This scenario should “see the Dollar soften – particularly against the procyclical currencies,” said the ING experts in a note.
Tensions in the Middle East support the safe-haven USD
The US Dollar is drawing additional support from higher safe-haven demand amid flaring tensions in the Middle East. Iran-backed Houthi militants attacked an Egyptian vessel in the Red Sea, killing some crew members, after the US Army opened fire against a cargo ship attempting to break the blockade of Iranian ports, pushing back hopes of the reopening of the Strait of Hormuz and a swift end to the war.
The Canadian Dollar, on the other hand, remains supported by higher Oil prices, which are acting as headwinds for USD/CAD rallies. Oil is Canada’s main export, and the Canadian Dollar has appreciated nearly 2% since the US broke the first ceasefire in early July.
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