USD/CAD bleeds out as US dollar sinks from recent peaks

• USD/CAD is under pressure as the US dollar slides from recent highs.
• The price of oil, one of Canada's major exports, fell sharply, but hawkish BoC eyed. 

USD/CAD is trading at 1.2868 and is off by some 0.2% after falling from a high of 1.2933 to a low of 1.2861 and is on track for a steep quarterly decline. On Thursday, the US fell from a two-week high against a basket of peers, with the index last down 0.38% at 104.70.

Both stocks and the US dollar came under pressure and data showed that Chicago-area business activity fell more than expected in June, according to data released Thursday. The Chicago Business Barometer slid to 56.4 this month from May's reading of 60.3, according to the Institute for Supply Management and Market News International. The consensus on Econoday was for a print of 58.4. Investors worry that the latest show of central bank determination to tame inflation will cause economies to slow rapidly.

Domestically, Canada's economy likely declined 0.2% in May, following a gain of 0.3% in April which matched estimates. This leaves the Bank of Canada on track to hike interest rates by three-quarters of a percentage point at its next policy decision on July 13, which would be its biggest hike in 24 years.

Meanwhile, the price of oil one of Canada's major exports fell sharply on Thursday on recession worries and signs US gasoline demand may be easing amid high prices. WTI crude oil for August delivery closed down US$4.02 to settle at US$105.76 per barrel, Marketwatch reported. August Brent crude, the global benchmark, was down US$1.44 to US$114.82, while Western Canada Select was down US$3.86 to US$87.63 per barrel.

The slide comes after the Energy Information Administration on Wednesday reported US oil inventories fell more than expected last week. However, price action still isn't pointing to demand-side constraints, given the still-extremely elevated crack spreads suggest that demand for crude oil will remain elevated nonetheless, analysts at TD Securities argued. ''Product inventories are at critically low levels, which also suggests restocking will keep crude oil demand strong.''