USD/CAD trims intraday gains near 1.3720 amidst a prevailing risk-off sentiment

• USD/CAD extends gains as fears over the Middle East situation escalate.
• US Dollar faced resistance after Fed Chair Powell’s dovish remarks over interest rate trajectory.
• Solid US economic figures provide support to underpin the Greenback.

USD/CAD continues the winning streak for the fourth consecutive day, trading lower around 1.3720 during the European session on Friday. The pair receives upward support as the risk-off sentiment prevails, which could be attributed to the fears of an escalation in the Middle East conflict, particularly due to the preparations for a potential ground invasion of Gaza by Israel.

Federal Reserve Chairman Jerome Powell's recent statements contributed to some pressure on the USD/CAD pair. Powell indicated that the central bank has no plans to raise rates in the short term, offering a respite for the pair. However, Powell also emphasized that future policy adjustments would depend on economic indicators, particularly growth and labor market conditions.

The scheduled address by US President Joe Biden on Thursday underscores the global significance of the Middle East situation, raising concerns about potential broader impacts on currency markets.

The US Dollar Index (DXY) rebounds from weekly lows, reaching around 106.40. Higher US Treasury yields and robust economic data, including a drop in Initial Jobless Claims to their lowest since January, contribute to the dollar's strength. However, challenges in the housing market, reflected in a 2.0% MoM decline in existing home sales, highlight some economic headwinds.

The release of weaker Canadian consumer inflation figures on Tuesday has led investors to scale back their expectations for another rate hike by the Bank of Canada (BoC). This, in turn, is viewed as a significant factor contributing to the relative underperformance of the Canadian Dollar (CAD), providing support for the USD/CAD pair.

However, the bullish trend in Crude oil prices, which supports the commodity-linked Loonie, could act as a counterforce, limiting further gains in the USD/CAD pair.

Western Texas Intermediate (WTI) oil price extends the gains for the fourth successive day, trading higher around $89.00 per barrel during the European session on Friday.

The recent surge in oil prices is closely tied to concerns about the potential escalation of the Israel-Gaza conflict across the Middle East. There are apprehensions that such escalation could disrupt oil supplies from one of the world's major production regions.

Furthermore, the US government's decision to purchase 6 million barrels of crude oil for delivery to the Strategic Petroleum Reserve (SPR) in December and January adds another dimension to the market dynamics. This move is part of a broader initiative to replenish the emergency stockpile, reflecting efforts to enhance the country's energy security.