USD/CAD KEEPS THE RED NEAR 1.3500, LACKS FOLLOW-THROUGH AHEAD OF US MACRO DATA

• USD/CAD meets with some supply on Tuesday and is pressured by a combination of factors.
• Attacks on shipping in the Red Sea lend support to Oil prices, which underpins the Loonie.
• Sliding US bond yields keep the USD bulls on the defensive and contribute to the decline.

The USD/CAD pair comes under some selling pressure on Tuesday and maintains its offered tone through the first half of the European session. Spot prices currently trade just below the 1.3500 psychological mark and for now, seem to have snapped a two-day winning streak to a multi-day peak touched on Monday.

Crude Oil prices attract some buyers for the second straight day in the wake of growing concerns about supply disruptions in the Middle East, led by persistent attacks by Iran-aligned Houthis on commercial vessels in the Red Sea. This, in turn, is seen underpinning the commodity-linked Loonie, which, along with the prevalent selling bias around the US Dollar (USD), exerts some downward pressure on the USD/CAD pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, continues with its struggle to gain any meaningful traction amid a fresh leg down in the US Treasury bond yields. That said, firming expectations that the Federal Reserve (Fed) will wait until June before cutting interest rates should act as a tailwind for the US bond yields, which should limit losses for the USD and the USD/CAD pair.

Looking at the broader picture, spot prices have been oscillating in a familiar trading range over the past two weeks or so. This further warrants some caution before placing aggressive directional bets ahead of this week's release of the crucial US Personal Consumption Expenditures (PCE) Price Index on Thursday. The data should provide cues about the Fed's rate-cut path, which, in turn, will drive the USD and the USD/CAD pair.

In the meantime, traders on Tuesday will take cues from the US economic docket – featuring the releases of Durable Goods Orders, the Conference Board's Consumer Confidence Index and the Richmond Manufacturing Index. This, along with the US bond yields, will influence the USD. Apart from this, Oil price dynamics should contribute to producing short-term trading opportunities around the USD/CAD pair.