USD/CAD surges past the 1.3600 mark amidst rising US bond yields; US political uncertainty

• US bond yields climb amid debt ceiling uncertainty, with the 10-year rate reaching 3.789%, a high since the Silicon Valley Bank collapse.
• US economy displays recovery signs with lower-than-expected jobless claims and an upwardly revised Q1 GDP, while the Fed hints at a pause in rate hikes.
• Canadian Manufacturing Sales declined by 0.2% in April, highlighting the economic contrast between the US and Canada.

USD/CAD reclaims the 1.3600 figure after hitting a daily low of 1.3586, climbs for two consecutive days toward the April 28 swing high at 1.3667, on mixed market sentiment, as the Nasdaq rises. The financial markets narrative remains the same, with Republicans and Democrats unable to reach an agreement despite Fitch Ratings threatening to review the US qualification. The USD-CAD is trading at 1.3639.

US economy bounces back amidst debt ceiling stalemate; Canadian Manufacturing Sales stumble

US House Speaker Kevin McCarthy said that both sides made some progress but that “There are still outstanding issues. I’ve directed our team to work 24/7 to solve this problem.” Uncertainty around the negotiations keeps US Treasury bond yields climbing, with the US 10-year benchmark note rate at 3.789%, its highest level since the Silicon Valley Bank (SVB) collapse on March 10.

Meanwhile, US Treasury Secretary Janet Yellen continued her campaign putting pressure on the US Congress, stating the US would run out of cash by June 1. Some consequences of the political drama in Washington triggered a reaction by Fitch Rating, warning that the US AAA rating is under threat.

Consequently, the US Dollar Index (DXY), which measures the performance of a basket of six currencies vs. the greenback, trades at 104.266, gains 0.36%. Therefore, the USD/CAD climbs on a strong US Dollar (USD), and weaker oil prices, as WTI tmbles more than 3%.

Aside from geopolitical jittery, US economic data shows the economy regaining momentum, as the Initial Jobless Claims for the week ending on May 20 expanded by 229K below expectations of 245K, as revealed by the US Bureau of Labor Statistics (BLS). In another report, the second estimate of the US Gross Domestic Product (GDP) for Q1 was revised from 1.1% to 1.3%.

On Wednesday, the US Federal Reserve revealed the May meeting minutes, which showed that the US central bank is open to pause rates at the upcoming meetings, though emphasized that some flexibility is needed in the case of needing higher rates. Furthermore, participants commented the current monetary policy is impacting the economy as bank credit tightened, that no rate cuts are expected in 2023, and that the Fed will be data-dependent.

On the Canadian front,  Manufacturing Sales plunged -0.2% in April, below March’s 0.7% increase.

USD/CAD Technical Levels