USD/CAD Rebounds Above 1.4050 Amid Hawkish Fed Signals

The USD/CAD pair has rebounded above 1.4050 in early European trading on Thursday, maintaining a constructive outlook as it holds above its 100-day simple moving average.

The US Federal Reserve's decision to keep interest rates unchanged at their July policy meeting and Fed Chairman Kevin Warsh's comments about being prepared to act if inflation pressures accelerate are both positive for the USD.

However, renewed military escalation in the Middle East could boost crude oil prices, supporting the CAD as Canada is a major oil-exporting country.

Scotiabank strategists caution that despite an improvement in underlying fundamentals, trade tensions and the tariff threat persist, limiting CAD upside against the USD in the near term.