USD/CAD surrenders intraday gains to multi-month top, back below 1.3800 ahead of US GDP

• USD/CAD pulls back a bit after rising to a seven-month high earlier this Thursday.
• Weaker Crude Oil prices and a bullish USD supports prospects for additional gains.
• Traders now look to the US Q3 GDP and other US macro data for a fresh impetus.

The USD/CAD pair retreats a few pips from its highest level since March touched during the early part of the European session and currently trades just below the 1.3800 mark, unchanged for the day.

The intraday pullback could be attributed to some profit-taking, especially after a strong rally of over 150 pips from the weekly low, around the 1.3660 region touched on Tuesday and ahead of important US economic data. The downside, however, remains cushioned in the wake of the underlying bullish sentiment surrounding the US Dollar (USD) and a modest downtick in Crude Oil prices, which tends to undermine the commodity-linked Loonie.

Growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance and keep interest rates higher for longer remains supportive of elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond climbs back closer to a 16-year peak, around the 5% threshold breached earlier this week. Apart from this, the risk-off mood benefits the safe-haven buck, which, in turn, is lending support to the USD/CAD pair.

Against the backdrop of concerns that the raging Israel-Hamas war could spill over to the wider Middle East region, worries about economic headwinds stemming from rapidly rising borrowing costs temper investors' appetite for riskier assets. The looming recession risk, meanwhile, raises doubts over a strong global fuel demand and weighs on Crude Oil prices. This, along with the Bank of Canada's (BoC) relatively dovish outlook, undermines the Canadian Dollar.

The Canadian central bank held its benchmark interest rates unchanged at a 22-year high of 5.0% for the second straight month in light of a slowing economy and lowered its 2023 growth estimate to 1.2% from 1.8% in July. The BoC, meanwhile, sees inflation staying above the 2% target and averaging around 3.5% through mid-2024. This left the door open for more rate hikes, which, in turn, is seen holding back bulls from placing fresh bets around the USD/CAD pair.

Investors also prefer to wait on the sidelines ahead of Thursday's key US macro releases – the Advance Q3 GDP print. This will be accompanied by Durable Goods Orders and the usual Weekly Initial Jobless Claims, followed by Pending Home Sales data. This, along with Fed Governor Christopher Waller's scheduled speech, will influence the USD demand. Apart from this, Oil price dynamics should provide short-term trading impetus to the USD/CAD pair.

Technical levels to watch