USD/CAD moves above 1.3850, upside seems restrained due to improved Oil prices

• USD/CAD gains support following hawkish remarks from Federal Reserve Chair Jerome Powell.
• CME FedWatch Tool suggested that traders are now anticipating the first rate cut in July.
• The commodity-linked CAD may find support from stronger crude Oil prices.

USD/CAD halts its two days of losses, trading around 1.3860 during the Asian hours. However, market activity is expected to remain subdued due to the Good Friday holiday. The US Dollar found support from hawkish comments by Federal Reserve Chair Jerome Powell, who warned that persistent inflation and a slowing economy could threaten the Fed’s dual mandate, raising the risk of stagflation.

Market sentiment took another hit after President Trump criticized Fed Chair Powell’s recent remarks. However, the CME FedWatch Tool suggested that traders are now pricing in approximately 86 basis points of rate cuts by the end of 2025, with the first cut anticipated in July.

On the data front, the US Department of Labor (DOL) reported that Initial Jobless Claims dropped to 215,000 for the week ending April 12, beating forecasts and down from a revised 224,000. However, Continuing Claims rose by 41,000 to 1.885 million for the week ending April 5.

Gains in the USD/CAD pair may be capped as the commodity-linked Canadian Dollar (CAD) could find support from stronger crude Oil prices. Oil rallied after the US imposed new sanctions on Iranian exports, sparking concerns over tighter global supply. Meanwhile, uncertainty lingers over potential US tariffs on key commodities including copper, semiconductors, pharmaceuticals, and lumber.

The Bank of Canada (BoC) warned that a spike in inflation driven by a potential Trump-era global trade war could plunge the economy into a “deep recession.” While it refrained from issuing an updated forecast, the BoC outlined two potential scenarios reflecting the uncertainty surrounding future US tariff policy and its impact on Canada’s outlook.