USD/CAD gains momentum above 1.3430 amid strong USD, US CPI eyed

• USD/CAD gains momentum near 1.3425 as the markets turn cautious.
• The US trade deficit came in at $65.5 billion, higher than expectations of $65 billion.
• The Loonie has attracted some sellers from the weaker than expected labor data last week.
• Market players await the US inflation data for fresh impetus.

The USD/CAD pair extends its upside above the 1.3400 mark on the back of a cautious market mood during the early Asian session on Wednesday. The major currently trades around 1.3425, gaining 0.04% for the day.

The US trade data show a sluggish economic rebound and subdued global demand in the country. The US trade deficit narrowed sharply in June, with the figure coming in at $65.5 billion, higher than expectations of $65 billion and below the $68.3 billion prior.

On the same line, Imports fell 1.0% to $313 billion from $316.1 billion the previous month, the lowest level since November 2021. The Commerce Department reported that a drop in Imports on Tuesday might indicate a slowdown in company investment and domestic demand despite the Federal Reserve's significant interest rate rises. Meanwhile, Exports dropped 0.1% to $247.5 billion, a 15-month low.

Additionally, Moody’s downgraded the credit ratings of several midsize and small US lenders and issued a warning about possible cuts to the ratings of larger institutions. Moody's added that banks with significant unrealized losses that are not reflected in their regulatory capital ratios are vulnerable to a loss of confidence in the current tightening policy cycle. Markets turn cautious about this headline and lift the safe-haven Dollar.

On the other hand, Loonie has attracted some sellers from the weaker than expected labor data last week. Statistics Canada revealed that the Canadian economy unexpectedly lost 6,400 jobs in July. Meanwhile, the Unemployment rate rose to 5.5%. The data might convince the Bank of Canada (BoC) to maintain its monetary policy this year. and might cap the upside in the Canadian Dollar.

Meanwhile, the uptick in oil prices has supported the Loonie and offset the downbeat Canadian data. Higher crude prices strengthen the Canadian Dollar, as the country is the leading oil exporter to the United States.

Looking ahead, investors will keep an eye on the US inflation data later this week. The US Consumer Price Index (CPI) for July and the Producer Price Index (PPI) will be released on Thursday and Friday, respectively. The data will be critical for determining a clear movement for the USD/CAD pair.