Despite the US Dollar's Strength, the USD/CAD is under pressure

USD/CAD is slightly lower in Tokyo on Wednesday as the US dollar maintains its bid position. Thus far, the price has fallen from a high of 1.2619 to a low of 1.2603. Overnight, the Canadian currency strengthened against its US counterpart, despite rising bond yields that aided the greenback's strength.

The DXY index increased for the fourth consecutive day, reaching a new cycle high of 101.028. The next significant objective is the March 2020 high near 103. The US dollar was bolstered by US 10-year Treasury rates, which hit 2.928 percent on Tuesday, the highest level since December 2018, and are on track to test the October 2018 peak near 3.26 percent.

"With inflation expectations staying relatively stable, the real 10-year yield traded near -0.04% today, the highest level since March 2020 and poised to enter positive territory for the first time since the epidemic began," Brown Brothers Harriman analysts explained. "While the 2-year is still lagging slightly, it traded at 2.47 percent today, missing the cycle high of 2.60 percent earlier this month but remaining on track to hit the November 2018 high of 2.97 percent."

Meanwhile, one of Canada's primary exporters is experiencing volatility on the market. WTI spot prices concluded the day at a high of $104.44bbls. However, as ANZ Bank analysts said, "China's COVID-zero policy and stringent lockdowns are keeping demand forecasts muted."

Additionally, discussions of aggressive rate hikes have weighed on market sentiment, the analysts warned. The market has thus far shrugged off supply uncertainties associated with a sixth sanctions package. The EU Commission President stated that 'we are now designing smart ways to include oil in the next sanction phase,' implying that oil may be included in the package. Libyan production plummeted to 800kb/d with the closure of the Sahara field (300kb/d)."

For the day ahead, Canada's March inflation report is coming Wednesday, which may provide insight into the Bank of Canada's policy outlook.

"We anticipate the Consumer Price Index to rise to 6.1 percent year on year in March, with prices increasing by 0.9 percent month on month," TD Securities analysts said. "Energy will be the primary driver, with an increase of 11% in gasoline and another large contribution from food. Automobiles, clothing, and shelter should contribute to the ex-food/energy aggregate's strength, while the Bank of Canada's core inflation measures should average 3.6 percent YoY."

USD/CAD