USD/CAD recovers some ground above the 1.3170 area

• USD/CAD posts a modest gain above the 1.3170 area amid a stronger USD.
• Initial US jobless claims showed a lower-than-expected figure.
• The Federal Reserve (Fed) is expected to raise rates by 25 basis points next week.
• The odds that the Bank of Canada (BoC) will maintain rates higher for longer lift CAD.

The USD/CAD pair recovers ground above the 1.3170 area in the early Asian session. The Canadian Dollar declines versus the Greenback following Thursday's release of US macro data.

The number of people claiming unemployment benefits was lower than expected for the second week of July. The weekly data published by the US Department of Labor (DOL) showed that Initial Jobless claims totaled 228,000 in the week ending July 15, beating the 242K estimation and the 237K prior. This figure showed the lowest reading since mid-May. Additionally, the Philadelphia Fed Manufacturing Survey for July dropped to a lower-than-expected -13.5, down from -13.7 prior. 

Meanwhile, US Existing Home Sales declined by -3.3% in June, following a 0.2% increase in May. The 4.16 million sales were lower than the 4.2 million estimated.

Next week, the Federal Reserve (Fed) is anticipated to hike interest rates by 25 basis points (bps). However, the odds of an additional rate hike before the end of the year increased following the latest data. This, in turn, strengthens the US Dollar broadly.

On the Canadian Dollar front, Employment Insurance Beneficiaries Change in May showed a 2.5% increase, compared to a -0.5% decrease in April. However, another factor supporting CAD is the probability that the Bank of Canada (BoC) will maintain higher rates for longer to combat persistent inflation.

Furthermore, the renewed trade war tensions between the US-China might exert pressure on crude oil and cap the upside for the commodities-linked Loonie. On Thursday, China's Ambassador Xie Feng criticized the US's consideration of foreign investment and AI chip restrictions. He added that China would retaliate if the US imposed more curbs on its chip sector in Beijing.

Looking ahead, the Canadian Retail Sales MoM will be due later in the day. Market participants will shift their focus to the Federal Open Market Committee (FOMC) meeting next week. The interest rate decision could significantly impact the US Dollar's dynamic and give the USD/CAD pair a clear direction.