USD/CAD holds steady around mid-1.3200s, lacks bullish conviction

• USD/CAD attracts some buyers on Monday and is supported by a modest USD uptick.
• Bets for more rate hikes by the Fed helps revive the USD demand and act as a tailwind.
• Investors now look to this week’s US macro data and FOMC minutes for a fresh impetus.

The USD/CAD pair kicks off the new week on a positive note, following a good two-way price swings on Friday, and maintains its bid tone, around mid-1.3200s through the Asian session.

Firming expectations the Federal Reserve (Fed) will continue to tighten its monetary policy assist the US Dollar (USD) to attract some buyers on Monday, which, in turn, is seen as a key factor acting as a tailwind for the USD/CAD pair. It is worth recalling that Fed Chair Jerome Powell reiterated last week that borrowing costs may still need to rise as much as 50 bps by the end of this year. Moreover, the current market pricing indicates a nearly 85% chance of a 25 bps lift-off at the next FOMC policy meeting in July and the bets were reaffirmed by the fact that the US PCE Price Index remains well above the 2% inflation target.

In fact, the US Bureau of Economic Analysis report on Friday the annual PCE Price Index decelerated to 3.8% in May from 4.3% in the previous month and the core gauge, excluding the volatile food and energy components, ticked down to 4.6% from 4.7% in April. Additional details, however, showed that the US consumer spending slowed sharply in May, which, in turn, is holding back the USD bulls from placing aggressive bets and keeping a lid on any meaningful upside for the USD/CAD pair. Crude Oil prices, meanwhile, consolidate last week's strong recovery gains and do little to influence the commodity-linked Loonie.

That said, the softer domestic consumer inflation for May, which registered its slowest pace of rise since June 2021, might continue to undermine the Canadian Dollar (CAD) and lend support to the USD/CAD pair. The monthly Canadian GDP print released on Friday, however, leaves the door open for the Bank of Canada to hike interest rates in July. This, in turn, makes it prudent to wait for strong follow-through buying before traders start positioning for the resumption of the pair's recent bounce from the 1.3115 region, or its lowest level since September 2022 touched last week.

Market participants now look forward to important US macro data scheduled at the beginning of a new month, starting with the release of the ISM Manufacturing PMI later during the early North Amreican session this Monday. The key focus, meanwhile, will remain on the FOMC meeting minutes on Wednesday and the closely-watched US monthly employment details - popularly known as the NFP report on Friday. This, along with Canadian jobs data and Oil price dynamics, will drive demand for the CAD and make it an eventful week for the USD/CAD pair.

Technical levels to watch