USD/CAD Resilient Despite Weak Dollar, Surging Oil,and Rate Hike

The USD/CAD pair reached a new three-week high at 1.3375 during the London session, displaying remarkable strength despite several obstacles. The US Dollar Index (DXY) has been experiencing weakness, oil prices have surged to a two-week high of $72.35, and expectations of another interest rate hike from the Bank of Canada (BoC) loom in the background.

Despite these challenges, the USD/CAD pair has continued its impressive rally. The US Dollar Index (DXY) has found support around the 103.00 level but is expected to remain volatile as the market awaits the release of the Nonfarm Payrolls (NFP) data. RBC Economics analysts predict a moderate increase of around 260,000 in payroll employment for the June jobs report, slightly lower than the previous month's figure of 339,000. However, the unemployment rate is expected to rise slightly from 3.7% to 3.8%.

Similarly, the Canadian Dollar's performance will heavily depend on its domestic employment data. NBF analysts anticipate a resumption of job creation in June, with an expected gain of 20,000. However, this may not be sufficient to prevent a further increase in the unemployment rate, which is projected to rise from 5.2% to 5.3%. This rise is attributed to the strong growth of the labor force, with the participation rate expected to increase to 65.6%.

A Reuters poll suggests that the Bank of Canada (BoC) will raise interest rates by 25 basis points (bps) to 5% in July. This anticipated rate hike, if realized, would mark a significant development, and the monetary policy is expected to remain stable for an extended period thereafter.

Despite global central banks preparing for a fresh rate hike cycle, oil prices have reached a new two-week high at $72.35. This increase in oil prices is noteworthy, as Canada is the largest exporter of oil to the United States. Higher oil prices generally support the Canadian Dollar, adding further support to its current strength.