The pair is gaining ground as the US dollar "treads water" to stem recent losses driven by higher US Treasury yields. Additionally, the gains in the USD/CAD pair are being aided by heightened risk aversion stemming from the military situation between Israel and Hamas.
However, the bearish trend in oil prices is adding further losses to the USD/CAD pair.
The price of Western Texas Intermediate (WTI) crude oil fell for the second consecutive day and traded lower around $87.40 per barrel during the European session on Monday.
Bank of Canda will decide on rates
Investors are awaiting the Bank of Canada's (BoC) interest rate decision on Wednesday (25.10.2023) with expectations that the interest rate will remain at 5.0%. The market expects the BoC to leave the interest rate unchanged for the rest of the year. In addition, rates are expected to be cut in the second quarter of 2024.
Mixed remarks by US Federal Reserve (Fed) officials on the interest rate trajectory may add to the pressure on the USD/CAD pair. Atlanta Fed President Raphael Bostic indicated that the Federal Reserve is unlikely to cut interest rates until the middle of next year and Philadelphia Fed President Patrick Harker expressed a preference to leave interest rates unchanged.
The Fed will probably still raise rates
In addition, Federal Reserve (Fed) Chairman Jerome Powell made clear last week that the central bank is not planning an immediate rate hike, highlighting the potential for further monetary tightening in response to signs of growth.
