USD/CAD depreciates to near $75.50 due to a recovery in Oil prices, Fed decision awaited

• USD/CAD loses further as higher Oil prices support the commodity-linked Canadian Dollar.
• WTI rebounded from an eight-week low of $74.24 due to rising geopolitical tensions in the Middle East.
• The Fed is expected to keep rates unchanged at its July meeting.

USD/CAD extends its losses after retreating from an eight-month high of 1.3865 on Monday, trading around 1.3840 during the Asian session on Wednesday. The recovery in crude Oil prices is supporting the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD), as Canada is the largest crude exporter to the United States.

West Texas Intermediate (WTI) crude Oil price trades around $75.40 per barrel by the press time. WTI rebounded from an eight-week low of $74.24 recorded on Tuesday, attributed to rising geopolitical tensions in the Middle East.

The Israeli government claims it killed Hezbollah's most senior commander in an airstrike on Beirut on Tuesday, in retaliation for Saturday's cross-border rocket attack on Israel. This escalation occurred despite diplomatic efforts by US and UN officials to prevent a major conflict that could inflame the wider Middle East, according to Reuters.

Scotiabank’s Chief FX Strategist, Shaun Osborne, noted that the CAD is contending with a significant wave of negative sentiment. “The latest CFTC data showed a substantial buildup of bearish CAD positioning. While positioning appears excessive, the weak sentiment is largely a reflection of the Bank of Canada’s easing bias.”

Read the full article: Bears can break below 1.3835 in short term – Scotiabank

On data front, Canadian Gross Domestic Product (MoM) data for May is scheduled to be released on Wednesday. On the USD front, the Federal Reserve is expected to keep rates unchanged in the upcoming meeting later in the North American session.

However, there is growing anticipation of a rate cut in September, putting downward pressure on the US Dollar. Additionally, signs of cooling inflation and easing labor market conditions in the United States are further fueling expectations of multiple rate cuts by the Fed this year, potentially totaling three cuts. CME FedWatch Tool indicates a 100% probability of at least a quarter percentage point cut in September.