USD/CAD bears attack 1.3100 amid persistent USD weakness

• USD/CAD remains on the defensive near the 1.3100 region.
• The US Dollar came under renewed selling pressure, hitting its lowest since April 2022.
• The hawkish stance from the Bank of Canada (BoC), the rise in crude oil prices underpin the Loonie.

The USD/CAD pair licks its wounds around the 1.3100 area, the lowest level in 10 months. The pair remains under pressure following weaker US inflation data earlier in the week. 

The Bank of Canada (BoC) raised the benchmark interest rates by 25 basis points (bps) to 5.0% in its July policy meeting on Wednesday. BoC Governor Tiff Macklem stated on the policy outlook that additional interest rate hikes are necessary to slow demand growth in the economy and alleviate price pressures. This, combined with the recent rise in crude oil prices to fresh three-month highs, continues to support the commodity-linked Loonie on Friday.

On the other hand, the US Dollar came under renewed selling pressure, following the softer US inflation data earlier in the week. The US Dollar Index (DXY), a gauge of the performance of the Greenback against a basket of six major currencies, hit its lowest since April 2022, below 100.00. 

That said, the US Consumer Price Index (CPI) dropped to 3.0% YoY in June from 4.0% in May, below the market anticipation of 3.1%, while the Producer Price Index (PPI) rose 0.1%, the lowest figure since August 2020. The inflation report suggested that inflationary pressures in the US economy are cooling and that the Federal Reserve (Fed) will be less aggressive with tightening monetary policy after an expected interest rates hike in the upcoming meeting on July 26. This, in turn, leds to a further decline in the US Treasury bond yields and weighed on the US Dollar as well as the USD/CAD pair.

Moving on, the US University of Michigan Preliminary Consumer Sentiment data is due later on Friday. The market participants will shift their focus to the Canadian Consumer Price Index (CPI) next week. Traders will take cues from the data and find a direction for the USD/CAD pair.