USD/CAD falls to near 1.3650 due to improved risk appetite, improved WTI price

• USD/CAD edges lower due to a weaker US Dollar amid improved risk appetite.
• Fed Chair Jerome Powell has anticipated for a sustained decrease in inflation, indicating less confidence in the disinflation outlook.
• The higher WTI price contributes support for the Canadian Dollar.

USD/CAD has extended losses for the second successive session, trading around 1.3640 during the Asian hours on Wednesday. The decline of the pair could be attributed to the weaker US Dollar (USD) as investors digested higher-than-expected US Producer Price Index data for April while awaiting the Consumer Price Index report scheduled for Wednesday.

The US Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) rose 0.5% MoM in April, surpassing the market expectations of a 0.3% increase. The producer prices have rebounded from March's contraction of 0.1%. Additionally, the Core PPI, which excludes volatile food and energy prices, also surged 0.5% month-over-month, exceeding projections of 0.2%.

Federal Reserve Chair Jerome Powell shared his views after the release of US PPI. According to a Reuters report, Powell has anticipated a continued decline in inflation and expressed less confidence in the disinflation outlook compared to previous assessments. He also highlighted that Gross Domestic Product (GDP) growth is expected to reach 2% or higher, attributing this positive forecast to the strength of the labor market.

In Canada, the Royal Bank of Canada has revised its forecast for the USD/CAD pair to 1.3700 by the end of June 2024. This adjustment is attributed to the contrasting trajectories of interest rates between Canada and the United States (US). The Bank of Canada (BoC) is anticipated to implement four consecutive rate cuts in 2024, with an additional reduction of 100 basis points (bps) in 2025. While hawkish remarks from the Fed officials suggest maintaining the higher rates for longer.

Regarding commodities, the rise in crude Oil prices could bolster the Canadian Dollar (CAD), undermining the USD/CAD pair. Canada's status as the largest oil exporter to the United States, and the largest oil consumer, contributes to this dynamic.

West Texas Intermediate (WTI) crude Oil price retraces its recent losses, trading around $78.30 per barrel during Wednesday's Asian session. The advance of the crude Oil prices could be attributed to the latest crude Oil supply update from the American Petroleum Institute (API) released on Tuesday. Additionally, concerns have arisen due to wildfires nearing Fort McMurray, which serves as the central hub for Canada's Oil sands industry, contributing approximately 3.3 million barrels per day, equivalent to two-thirds of the nation's total output.