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USD/CAD Hovers Around 1.3600 Psychological Level Ahead of US CPI

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USD/CAD Hovers Around 1.3600 Psychological Level Ahead of US CPI Release

The USD/CAD pair remains in a tight struggle to surpass the key psychological level of 1.3600 as traders await the release of the US Consumer Price Index (CPI). The pair has seen two consecutive days of gains, trading in a positive territory around the 1.3600 level during the Asian session on Thursday. These moves come on the back of strong economic data from the United States and the release of the Federal Open Market Committee (FOMC) meeting minutes.

One of the significant factors bolstering the USD/CAD pair is the robust performance of the US Producer Price Index (PPI), which revealed an increase in September. The PPI rose from 2.0% to 2.2%, exceeding the expected 1.6% rise. This development has shifted market attention to Thursday's Consumer Price Index (CPI) release. Forecasts indicate a drop in the annual rate for September, slipping from 3.7% to 3.6%. Additionally, traders are keeping an eye on the weekly Jobless Claims report.

The FOMC meeting minutes presented a divergence in perspectives among committee members, emphasizing the significance of data-driven decisions. Some participants highlighted that a substantial rise in inflation would be a crucial factor in gaining consensus for further interest rate hikes.

There was also discussion among some members about the shift in monetary policy focus as the policy rate nears or reaches its peak. The focus would transition from determining the magnitude of rate increases to evaluating the duration of maintaining the policy rate at restrictive levels.

Amidst dovish comments and neutral stances from various Fed officials, speculations are circulating that the US Federal Reserve (Fed) might reconsider the idea of a rate hike. This speculation contributes to the evolving landscape of monetary policy expectations, creating a more nuanced economic environment.

Fed Governor Christopher Waller advocated a cautious approach to rate changes, suggesting that financial market tightening "would do some of the work for us." In contrast, Fed Governor Michelle Bowman expressed a preference for another rate hike, citing persistent inflation levels above the Fed's 2% target. These contrasting views within the Fed add complexity to the current economic landscape.

The US Dollar Index (DXY) is currently facing resistance around the 105.70 level, partially due to the decline in US Treasury yields. The 10-year US Treasury bond yield stands at 4.57% as of the latest data.

The Canadian Dollar (CAD) has faced its own set of challenges as oil prices retraced from weekly highs. Despite this, the Loonie experienced gains, primarily driven by Middle-East tensions. Canada is the largest oil exporter to the United States, and geopolitical factors have influenced CAD's performance.

From a technical perspective, the USD/CAD pair is trading within the 50% and 61.8% Fibonacci area. This range has the potential to trigger a pullback in the direction of the prevailing trend, with the possibility of a bullish impulse on the horizon. The interplay between economic data, central bank policy, and technical levels makes USD/CAD an interesting pair to watch in the coming sessions.