USD/CAD extends gains to near 1.3570 on lower Crude oil prices, awaits GDP from US, Canada

• USD/CAD continues to gain ground on risk-off sentiment ahead of GDP data from both nations.
• The Canadian Dollar faces challenges due to the decline in the WTI price.
• CME FedWatch Tool suggests a 1.0% probability of rate cuts in March.

USD/CAD continues its winning streak for the fourth consecutive session, trading higher around 1.3570 during the European session on Wednesday. The Canadian Dollar (CAD) received downward pressure due to the decline in Crude oil prices, consequently, underpinning the USD/CAD pair. Furthermore, Canada’s Gross Domestic Product data will be eyed on Thursday.

West Texas Intermediate (WTI) oil prices snap its two-day winning streak, dropping to near $77.80 per barrel, at the time of writing. The challenges facing the oil market due to higher borrowing costs are indeed impacting global economic growth and reducing oil demand.

Additionally, the ongoing uncertainty surrounding ceasefire talks between Israel and Hamas, along with the continued targeting of civilian shipping vessels in the Red Sea by Iran-backed Houthis, adds further complexity to the situation.

The US Dollar Index (DXY) gains ground despite the subdued US Treasury yields. The DXY rises to nearly 104.10, while the 2-year and 10-year yields on US Treasury bonds stand at 4.69% and 4.29%, respectively, by the press time.

The improved US Dollar (USD) is bolstering the USD/CAD pair, possibly due to prevailing risk-off sentiment in the market ahead of the release of the preliminary Gross Domestic Product Annualized data from the United States scheduled for Wednesday. However, market expectations anticipate that the US GDP will remain steady at 3.3% in the fourth quarter of 2023.

The Federal Reserve’s (Fed) officials have signaled caution regarding any rapid reductions in interest rates, resulting in a reduced likelihood of a rate cut in the upcoming meetings. According to the CME FedWatch Tool, the probability of rate cuts in March has decreased to 1.0%, while the likelihood of cuts in May and June stands at 21% and 49.8%, respectively.