USD/CAD clings to recovery gains near mid-1.2800s post-US PCE/Canadian GDP

• USD/CAD rebounds from a six-week low set on Friday amid the emergence of fresh USD buying.
• The upbeat US PCE report revives Fed rate hike bets and remains supportive of the USD bounce.
• An uptick in oil prices, a slightly better Canadian GDP could underpin the loonie and cap the upside.

The USD/CAD pair shows some resilience below the 1.2800 mark and stages a goodish bounce from a six-week low touched earlier this Friday. The intraday buying remains unabated following the release of US/Canadian macro data and pushes spot prices to a fresh daily high, around mid-1.2800s during the early North American session.

As investors digest the less hawkish FOMC decision and Thursday's disappointing US GDP print, the US dollar witnesses a turnaround on the last day of the week and offers some support to the USD/CAD pair. The USD recovery from its lowest level since July 5 picks up pace following the release of stronger-than-expected US Personal Consumption Expenditures (PCE report).

The US Bureau of Economic Analysis reported that the headline index accelerated to 6.8% YoY in June from 6.3% previous. The Core PCE Price Index - the Fed's preferred gauge of inflation - edged higher to the 4.8% YoY rate as against the 4.7% in May and expected. Further details revealed that Personal Spending and Personal Income rose by 1.1% and 0.6%, respectively.

The upbeat data might revive bets for a 50 bps Fed rate hike move at each meeting in the remainder of this year. This, along with indications of a cautious opening in the US equity markets, seems to benefit the safe-haven greenback and push the USD/CAD pair higher. That said, an uptick in crude oil prices could underpin the commodity-linked loonie and cap the upside.

The Canadian dollar, meanwhile, reacts little to the domestic data, which showed that the economic growth remained flat in May. The backwards-looking release passes unnoticed, suggesting that the USD price dynamics might continue to play a key role in influencing the USD/CAD pair.

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