Canadian Dollar seems vulnerable near two-month low as USD maintains bullish undertone

The USD/CAD pair maintains a bullish outlook around the 1.4235 region, consolidating its notable gains from the last four weeks. The Canadian Dollar (CAD) remains relatively underperforming due to the Bank of Canada's (BoC) loose monetary policy and ongoing US-Canada trade tensions. Alongside the weakening crude oil prices, the CAD's underperformance is exacerbated.

The recent decline in crude oil prices further hampers the commodity-linked currency. This, coupled with a bullish USD, adds to the favorable conditions for the USD/CAD pair. The US PCE data released on Wednesday has tempered expectations for an October Federal Reserve rate hike, while oil-related inflation concerns continue to bolster US bond yields near multi-year highs.

Traders are increasingly anticipating another interest rate hike from the US central bank by the year's end, further supporting the USD. Meanwhile, escalating tensions between Iran and the US add to the geopolitical risk premium, further bolstering the USD. Traders now anxiously await key economic indicators from the US, including the Weekly Initial Jobless Claims and the ISM Manufacturing PMI, as well as speeches from influential Federal Open Market Committee (FOMC) members and emerging geopolitical headlines.

These factors will significantly impact the USD. The USD/CAD pair continues to exhibit a bullish near-term bias, although momentum remains a concern. The Relative Strength Index (14) is currently in overbought territory near 78, indicating that the upside may face resistance rather than a steady acceleration. However, the broader setup suggests that dips could present buying opportunities, even if overbought conditions trigger short-term consolidation or a mild pullback.

The technical analysis, assisted by an AI tool, underscores the potential for a corrective slide towards the 1.4200 level before potentially heading lower to the 1.4170-1.4165 region.