USD/CAD Hits Two-Week High as Hawkish Fed Expectations Dominate

The US Dollar (USD) has remained firmly supported ahead of the Federal Reserve's monetary policy announcement on Wednesday, causing the USD/CAD to extend its advance for a fifth consecutive day. The pair is hovering near a two-week high as markets almost fully price in a quarter-point Fed hike. However, rising Oil prices are offering some support to the Canadian Dollar (CAD), keeping the pair's gains contained.

The energy shock stemming from the war in the Middle East has complicated the central bank's task of bringing inflation sustainably back toward its 2% target. The benchmark 10-year US Treasury yield climbed above 5% on Tuesday, reaching its highest level since 2007. Hawkish Fed expectations and elevated Treasury yields are keeping the US Dollar supported.

The West Texas Intermediate (WTI) Oil price trades above $100 a barrel, around levels last seen on May 21. Higher Oil prices typically support the Canadian Dollar because Canada is a major crude exporter. However, the Loonie struggles to capitalize as a firmer US Dollar and hawkish Fed expectations remain the stronger forces.