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USD/CAD consolidates in a range below 1.3700 mark, bullish potential seems intact

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  • USD/CAD lacks firm intraday direction and consolidates below the YTD top set on Thursday.
  • An uptick in Oil prices underpins the Loonie and caps the upside amid subdued USD demand.
  • Reduced Fed rate cut bets favors USD bulls and support prospects for further near-term gains.

The USD/CAD pair oscillates in a narrow trading band during the Asian session on Friday and for now, seems to have stalled the previous day's late pullback from its highest level since November 22. Spot prices currently trade just below the 1.3700 mark, nearly unchanged for the day, though this week's breakout through the 1.3600-1.3610 supply zone favors bulls and supports prospects for a further near-term appreciating move. 

Crude Oil prices edge higher amid heightened tensions in the Middle East on the back of a possible Iranian retaliation over a suspected Israeli strike on its embassy in Syria. This, in turn, is seen underpinning the commodity-linked Loonie, which, along with subdued US Dollar (USD) price action, acts as a headwind for the USD/CAD pair. That said, jitters about growing non-OPEC output, led by the US, might cap gains for the black liquid. Apart from this, expectations that the Federal Reserve (Fed) may delay cutting interest rates favor the USD bulls and should limit the downside for the currency pair. 

The hotter-than-expected US consumer inflation figures released on Wednesday forced investors to push back their expectations about the timing of the first interest rate cut by the Fed to September from June. Investors also pared their bets for the number of rate cuts of 25 basis points (bps) this year to fewer than two, or roughly 42 bps, from about three or four a few weeks ago. This remains supportive of elevated US Treasury bond yields and assists the USD to stand tall near its highest level since November touched on Thursday, validating the near-term positive outlook for the USD/CAD pair. 

Even from a technical perspective, the post-US CPI strength above the 1.3600-1.3610 barrier and the subsequent move up suggests that the path of least resistance for spot prices is to the upside. Market participants now look to the release of the Preliminary Michigan Consumer Sentiment Index, due later during the North American session. Apart from this, speeches by FOMC members will drive the USD demand. This, along with Oil price dynamics, should produce short-term trading opportunities around the USD/CAD pair, which seems poised to register gains for the second straight week.

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