USD/CAD trading modest gains around 1.3575-80 zone, lacking bullish conviction

• USD/CAD is higher during the Asian session on Wednesday amid modest USD strength.
• Reduced bets on a 50bp Fed rate cut lift US bond yields and support the greenback.
• A rally in oil prices provides support to the Loonie and puts a lid on further gains for the pair.

The USD/CAD pair is drawing a buying discount during the Asian session on Thursday and for now appears to have blocked its slide back from a three-week peak around the 1.3620-1.3625 area reached the previous day . However, intraday growth lacks bullish conviction, which warrants caution before positioning for any significant appreciation movement.

The key US Consumer Price Index (CPI) report indicated that US consumer prices are generally falling. That said, core CPI indicated that core inflation remains sticky and dashed hopes for a further 50 basis point (bps) rate cut by the Federal Reserve (Fed) next week. This in turn leads to a rise in US Treasury bond yields which lifts the US dollar (USD) back closer to the monthly peak and is proving to be a key factor acting as a tailwind for the USD/ CAD

Meanwhile, the US central bank is almost certain to begin its policy easing cycle and cut borrowing costs by 25 bps at its September 17-18 policy meeting. This, along with a generally positive tone around equity markets, is keeping a lid on the Greenback. Moreover, a modest rise in crude oil prices is supporting the commodity-linked Loonie and helping to cap the USD/CAD pair, making it prudent to wait for strong buying before placing new bullish bets.

Market participants are now looking forward to the release of the US producer price index (PPI) for a boost later during the opening session in North America. This, along with US bond yields and broader risk sentiment, will drive USD demand. Apart from this, oil price dynamics should allow traders to take short-term opportunities around the USD/CAD pair.