USD/CAD falls further to near 1.3450 ahead of US core PCE inflation data

• USD/CAD drops to near 1.3450 as US Dollar retreats ahead of the US core PCE inflation data.
• The BoC kept interest rates unchanged at 5%.
• Oil prices fall slightly but remains broadly upbeat amid supply chain disruptions due to Red Sea crisis.

The USD/CAD pair drops further to near 1.3450 in the European session. The Loonie asset faces a sell-off as the US Dollar Index (DXY) has surrendered intraday gains. The USD Index faces offers while attempting to recapture monthly high of 103.82.

Losses posted by the S&P500 futures in the Asian session are now in the European session, indicating some recovery in the risk-appetite of the market participants. 10-year US Treasury yields have dropped to near 4.10%.

The USD Index falls back from 103.68 ahead of the United States Core Personal Consumption Expenditure (PCE) Price Index data for December, which will be published at 13:30 GMT. As per the estimates, monthly core PCE rose at a slightly higher pace of 0.2% against 0.1% in November. The annual core inflation tool is seen decelerating to 3% vs. former reading of 3.2%.

Federal Reserve (Fed) policymakers would advocate for keeping interest rates higher in the first two quarters of 2024 if the core PCE inflation report turns out stubborn-than-projected.

This week, the Canadian Dollar remains volatile as the Bank of Canada (BoC) kept interest rates unchanged at 5%. BoC Governor Tiff Macklem cited that the central bank is now considering how long interest rates should remain restricted. Macklem stressed on offering more time to higher rates to do their job effectively.

On the oil front, oil prices fall slightly from six-week high as focus shifts to central bank policy decisions. The broader appeal for the oil price is upbeat due to deepening tensions for commercial shipments from the Red Sea. Re-routing of oil shipments have disrupted the supply chain. It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices support the Canadian Dollar.