The USD/CAD pair has been trading in a tight range around 1.4170 during the Asian session on Friday, following losses in the previous trading session. After an initial dip, the pair has failed to make significant moves as the US Dollar (USD) faces challenges from weak jobless claims data and mixed signals from the Federal Reserve (Fed).
US Jobless Claims Data and Fed Commentary Weigh on USD
US Initial Jobless Claims for the week ending February 14 rose to 219,000, slightly above the expected 215,000. Continuing Jobless Claims also saw a small increase to 1.869 million, just below the forecast of 1.87 million. This weak data is contributing to the USD’s struggle, as investors digest potential implications for the US economy.
Fed Governor Adriana Kugler stated that US inflation still has “some way to go” before reaching the target of 2%, adding uncertainty to the economic outlook. Meanwhile, St. Louis Fed President Alberto Musalem highlighted risks such as stagflation and rising inflation expectations, suggesting a cautious stance from the central bank. These mixed signals from the Fed are keeping traders on edge as they await clearer guidance on future monetary policy.
Market Sentiment Boosted by Trump’s Trade Negotiation Update
While the US Dollar Index (DXY) is trading near 106.50, it has faced some challenges amid improved market sentiment following US President Donald Trump’s announcement of potential progress in trade negotiations with China. This development has helped alleviate some concerns over tariffs, boosting risk sentiment globally. However, Trump’s plans to impose new tariffs on lumber and forest products starting next month could weigh on the Canadian Dollar (CAD), as Canada is a major exporter of these products.
Focus on Canadian Economic Data and BoC Commentary
On the Canadian side, the Bank of Canada (BoC) could be rethinking its approach to rate cuts after the release of January’s Consumer Price Index (CPI) data, which showed persistent inflationary pressures. This has raised expectations that the BoC may hold off on further easing in the near term.
Traders will be closely watching the upcoming Canadian Retail Sales report and a speech by BoC Governor Tiff Macklem for further clues on potential shifts in Canadian monetary policy. Any hawkish signals from the BoC could provide support for the CAD, while dovish commentary could weigh on the currency.
Outlook for USD/CAD
As traders await the US S&P Global PMI data later on Friday, which will offer insights into the health of the US economy, USD/CAD is likely to remain range-bound. The pair’s movement will depend on the release of these key economic indicators, along with any further developments in US-China trade negotiations and the evolving monetary policy stances of the Fed and BoC.
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