USD/CAD hangs near multi-week low, below 0.9000 as USD struggles to gain traction

• USD/CAD enters a bearish consolidation phase near a multi-week low touched on Friday.
• Bets for an imminent Fed rate hike pause weigh on the USD and cap the upside for the pair.
• A positive risk tone undermines the safe-haven CHF and helps limit losses, for the time being.

The USD/CHF pair consolidates its recent slide to a nearly three-week low touched during the Asian session on Friday and oscillates in a narrow trading band below the 0.9000 psychological mark.

The US Dollar (USD) remains depressed near its lowest level since May 24 and is weighed down by the disappointing US macro data released on Thursday, which in turn, acts as a headwind for the USD/CHF pair. The US Department of Labor (DOL) reported on Thursday that the number of Americans filing new claims for unemployment benefits rose more than anticipated, to a 20-month high. This, in turn, reaffirms market expectations that the Federal Reserve (Fed) will pause rate hikes that led to the overnight slide in the US Treasury bond yields and continues to weigh the Greenback.

The markets, however, are still pricing in the possibility of another 25 bps Fed rate hike in July. The bets were lifted by surprise rate hikes by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) this week, which suggests that the fight against inflation is still not over and supports prospects for further policy tightening by the Fed. This, in turn, is holding back traders from placing aggressive bearish bets around the USD. Apart from this, a slight improvement in the global risk sentiment is seen undermining the safe-haven Swiss Franc (CHF) and lending support to the USD/CHF pair.

Any meaningful upside for the major, meanwhile, still seems elusive in the wake of worries about a global economic slowdown, which might keep a lid on any optimism. In fact, the Organization for Economic Co-operation and Development (OECD) forecasts that the global economy is set for a weak recovery over the coming years as persistent core inflation and tighter monetary policy weigh on demand. OECD now expects the global economy to expand by 2.7% this year - the lowest annual rate of growth since the 2008-2009 financial crisis excluding the pandemic-hit year of 2020.

Investors might also prefer to move to the sidelines ahead of the latest US consumer inflation figures and the key central bank event risk - the highly anticipated FOMC monetary policy meeting - next week. In the meantime, the US bond yields will play a key role in influencing the USD price dynamics in the absence of any relevant market-moving economic data from the US. Traders will further take cues from the broader risk sentiment to grab short-term opportunities. Nevertheless, the USD/CHF pair remains on track to register heavy weekly losses for the first time in the previous five.

Technical levels to watch