USD/CAD advances toward weekly high near 1.3740 amid firm US Dollar

• USD/CAD marches toward 1.3740, strengthen by the strong US Dollar.
• The US Dollar strengthens amid caution ahead of the US core PCE Inflation data.
• Canadian monthly and Q1 GDP data will exhibit its economic health.

The USD/CAD pair establishes itself above the round-level resistance of 1.3700 in Thursday’s Asian session. The Loonie asset aims to recapture weekly high near 1.3740 as the US Dollar strengthens. Strong demand of the US Dollar is driven by a sharp decline in traders’ bets for the Federal Reserve (Fed) reducing interest rates from the September meeting.

Investors remain risk-averse amid fears of the Fed delaying rate-cuts to the last quarter of the year. S&P 500 futures have posted significant losses in the Tokyo session, reflecting a sharp decline in investors’ risk-appetite. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps above the critical resistance of 105.00.

The scenario of higher interest rates by the Fed for a longer period bodes well for the yields on interest-bearing assets. 10-year US Treasury yields are slightly down to 4.61% but is close to almost four-week high.

Meanwhile, investors await the United States core Personal Consumption Expenditure Price Index (PCE) data for April, which will significantly influence speculation for Fed rate cuts in September. The underlying inflation data is scheduled to be published on Friday. Annual and monthly core PCE inflation readings are estimated to have grown steadily by 2.8% and 0.3% respectively.

On the Canadian Dollar front, investors await the Gross Domestic Product (GDP) data for different timeframes, which will be published on Friday. On a month-on-month basis, the Canadian economy is projected to have remained stagnant after expanding 0.2% in February. For the first quarter of the year, the economy is forecasted to have expanded by 2.2% on an annualized basis. Weak GDP numbers would prompt the likelihood of the Bank of Canada (BoC) to begin reducing interest rates from the June meeting.