USD/CAD languishes near two-week low set on Wednesday, just above mid-1.3100s

• USD/CAD attracts sellers for the third straight day and remains depressed near a two-week low.
• The BoC’s hawkish outlook, along with bullish Crude Oil prices, continue to underpin the Loonie.
• Bets that the Fed will end its rate-hiking cycle soon weigh on the USD and contribute to the slide.

The USD/CAD pair struggles to capitalize on the previous day's late rebound from the 1.3145-1.3140 area and meets with a fresh supply on Thursday. The intraday downfall - marking the third straight day of a negative move and the fourth in the previous five - drags spot prices back closer to over a two-week low touched on Wednesday.

The Bank of Canada (BoC) on Wednesday hiked its key overnight interest rate by 25 bps, to a 22-year high of 5%, and said that it could raise rates further because of the risk that efforts to return inflation to its 2% target could stall amid excess consumer spending. This, along with the recent bullish run in Crude Oil prices, to the highest level since early May, continues to underpin the commodity-linked Loonie. Apart from this, the prevailing selling bias surrounding the US Dollar (USD) is seen as another factor exerting downward pressure on the USD/CAD pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, sinks to its lowest level since April 2022 as investors now seem convinced that the Federal Reserve (Fed) is nearing the end of its current rate hiking cycles. The bets were lifted by the softer US CPI report released on Wednesday, which pointed to a further moderation in consumer prices. This comes on the back of signs that the US labor market is cooling and should allow the US central bank to soften its hawkish stance, which leads to a further decline in the US bond yields and weighs on the USD.

Apart from this, the risk-on environment - as depicted by the ongoing rally across the global equity markets - further dents the Greenback's relative safe-haven status and drags the USD/CAD pair lower. Spot prices, meanwhile, remain well within the striking distance of the YTD low, around the 1.3115 region touched in June, which if broken will set the stage for a further near-term depreciating move. Market participants now look to the US economic docket, featuring the release of the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims data for a fresh impetus.

Technical levels to watch