USD/CAD advances to over one-week high, holds above 1.3700 as traders look to US PCE data

• USD/CAD attracts fresh buyers on Friday amid a goodish pickup in the USD demand.
• The Fed’s hawkish outlook acts as a tailwind for the US bond yields and the Greenback.
• Bullish Crude Oil prices underpin the Loonie and cap gains ahead of the US PCE data.

The USD/CAD pair catches fresh bids following the previous day's good two-way price moves and spikes to a one-and-half-week high during the Asian session on Friday. Spot prices, however, retreat a few pips in the last hour and currently trade around the 1.3715 region, up just over 0.10% for the day.

As investors look past Thursday's softer US macro releases, the US Dollar (USD) regains positive traction and climbs to a fresh two-month peak, which turns out to be a key factor that provides a goodish lift to the USD/CAD pair. The intraday USD uptick could be attributed to some repositioning trade ahead of the crucial US inflation data, though lacks follow-through amid the uncertainty about the Federal Reserve's (Fed) rate cut path. Hence, the focus will remain on the US Personal Consumption Expenditure (PCE) Price Index, due later this Friday.

A lower-than-expected PCE deflator or a number that is in line with market expectations will back the case for two rate cuts by the Fed this year, which, in turn, could weaken the USD. Meanwhile, any upward surprise should push back the expected timing for the first Fed cut and trigger a fresh leg up for the buck. Nevertheless, the data will play a key role in influencing expectations about the Fed's future policy decisions, which, in turn, will drive the USD demand in the near term and help in determining the next leg of a directional move for the USD/CAD pair. 

Heading into the key data risk, growing acceptance that the Fed will start lowering borrowing costs in September amid signs of easing inflationary pressures and moderating US economic growth momentum caps the USD. The Canadian Dollar (CAD), on the other hand, draws support from a surge in domestic consumer inflation, which tempered bets for a July rate cut by the Bank of Canada (BoC). This, along with a further rise in Crude Oil prices to a fresh two-month top, underpins the commodity-linked Loonie and contributes to capping the USD/CAD pair.