USD/CAD rises above 1.3700 ahead of Core PCE inflation

• USD/CAD extends its winning streak due to higher yields on US Treasury bonds.
• US Core PCE inflation, the Fed's preferred inflation gauge, is forecasted to decrease to 2.6% YoY from the previous 2.8% reading.
• Canada’s GDP (MoM) is expected to grow by 0.3% in April, against the neutral growth observed in March.

USD/CAD continues to gain ground for the fourth consecutive day, trading around 1.3710 during the European session on Friday. Investors await Friday’s Core PCE Price Index inflation, which is projected to decrease year-over-year to 2.6% from the previous 2.8%. This data is seen as the Federal Reserve's (Fed) preferred inflation gauge.

Higher yields on US Treasury bonds support the US Dollar (USD) and underpin the USD/CAD pair. This could be attributed to the emergence of risk aversion after the US economy showed an expansion on Thursday. Gross Domestic Product Annualized expanded by 1.4% in Q1, slightly higher than the previous reading of 1.3%, but continuing to point to the lowest growth since the contractions in the first half of 2022.

US Dollar Index (DXY), which measures the value of the US Dollar against six other major currencies, holds ground above 106.00 with 2-year and 10-year US yields standing at 4.72% and 4.29%, respectively, at the time of writing.

Federal Reserve (Fed) Board of Governors member Michelle Bowman noted on Thursday that she is still not ready to support a central bank rate cut with inflation pressures still elevated. Bowman said, adding “We are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see some upside risks to inflation,” per Reuters.

Read the full article: Inflation should ease with current Fed policy

On the Canadian Dollar’s (CAD) side, Statistics Canada is scheduled to release the country's GDP (MoM) later in the North American session. Canada’s economy is expected to grow by 0.3% in April, compared to the neutral growth observed in March.

Higher crude Oil prices limit the downside of the commodity-linked CAD, given the fact that Canada is the largest Oil exporter to the United States (US). West Texas Intermediate (WTI) crude Oil price extends gains for the third successive day, trading near $81.90 during the European session on Friday. Crude Oil prices are set to advance for the third straight week due to supply threats, which could be attributed to an escalating conflict in the Middle East.