The USD/CAD pair extends gains for a second consecutive session on Friday, supported by robust US economic data. A hotter-than-expected US Consumer Inflation report has diminished expectations of a near-term interest rate cut by the Federal Reserve (Fed), strengthening the US Dollar (USD). Thursday’s positive Producer Inflation figures from the US further contribute to the USD/CAD pair trading higher around 1.3540.

The US Dollar Index (DXY) benefits from a hawkish sentiment surrounding the Fed, contemplating sustained higher interest rates to combat inflationary pressures. This sentiment is reflected in rising US Treasury yields over the past four sessions, with the DXY holding firm around 103.40. Notably, the US Core Producer Price Index (PPI) exceeded expectations with a 2.0% year-over-year increase in February.

On the other hand, WTI oil prices’ upward trajectory for the third consecutive day could support the Canadian Dollar (CAD), as Canada is a significant oil exporter to the US. However, Canadian Manufacturing Sales in January showed a modest rebound, albeit falling short of forecasts.

Looking ahead, traders await the preliminary US Michigan Consumer Sentiment Index for March and keep an eye on Crude oil price movements for potential impacts on the USD/CAD pair. Meanwhile, attention shifts to Canadian data releases, including Housing Starts and Wholesale Sales figures, which could influence the CAD’s performance.

Trade idea:

Consider monitoring the USD/CAD pair for further bullish momentum, especially if US economic data continues to surpass expectations. Watch Crude oil prices and Canadian data releases for potential shifts in the pair’s direction.