USD/CAD remains capped below the 1.3500 barrier, eyes on Michigan sentiment data

• USD/CAD edges lower to 1.3490 amid improved risk sentiment.
• The US weekly initial jobless claims posted an unexpected drop last week.
• A rebound of oil prices due to Middle East geopolitical tension might boost the commodity-linked Loonie.
• Traders will watch the preliminary US Michigan Consumer Sentiment Index for fresh impetus. 

The USD/CAD pair posts a modest loss below the 1.3500 barrier during the early Asian trading hours on Friday. An improved risk sentiment and a slight recovery in oil prices provide some support for the Canadian Dollar (CAD) and weigh on the pair. At press time, USD/CAD is trading at 1.3490, losing 0.03% for the day. 

Initial filings for unemployment insurance in the US totaled 187K for the week ended January 13, the lowest level since Sept. 24, 2022. The figure came in better than the market expectation of 207K, according to the Labor Department on Thursday. Meanwhile, the Philadelphia Fed Manufacturing Survey for January arrived at -10.6 versus -12.8 prior. In response to the data, the US Dollar Index edges higher above 103.60 as investors expect the Federal Reserve (Fed) will not rush to lower interest rates.

In contrast to recent robust growth in the United States, the Canadian economy is on the verge of entering a recession. Money markets expect the Fed to lower rates as soon as March, while the Bank of Canada (BoC) to cut the first rates from April. Meanwhile, a rebound in oil prices amid the fear of supply disruptions and geopolitical risk in the Middle East boosts the commodity-linked Loonie.

Market participants will monitor the preliminary US Michigan Consumer Sentiment Index and Existing Home Sales, due on Friday. Additionally, FOMC members M. Daly (San Francisco) and M. Barr (Board of Governors) are set to speak later in the day. Traders will find trading opportunities around the USD/CAD pair.