Canadian Dollar picks up as geopolitical concerns ease

• Canadian Dollar extends recovery in calm Friday trading session. 
• Iran has downplayed the alleged drone attack from Israel, which has eased risk aversion. 
• USD/CAD is testing the neckline of a bearish S&H pattern at 1.3725.

The Canadian Dollar (CAD) is trading higher for the third consecutive session on Friday and is on track for a moderate weekly recovery after a sharp sell-off over the previous two weeks. A softer US Dollar in the absence of key macroeconomic data and easing fears about the Middle East conflict are contributing to the Loonie's recovery.

Investors seem to have come to terms with the idea that the Federal Reserve (Fed) will delay and scale down its monetary easing plans, which is allowing some take-profit for the US Dollar. Chicago Fed President Austen Goolsbee has reiterated the lack of progress on inflation, but the impact on the US Dollar has been marginal.

Furthermore, the Iranian authorities have played down rumours about a drone attack by Israel. With no further threat to an escalation of the conflict, the immediate risk aversion has gradually eased, which is good for the CAD. 

Daily digest market movers: USD/CAD extends recovery as risk aversion eases

• Canadian Dollar appreciates further, favoured by a light US macroeconomic calendar and easing geopolitical concerns.
   
• Iranian government has downplayed the alleged attack from Israel and showed no intentions for retaliation, which has calmed markets.
   
• On Friday, Chicago Fed President Austen Goolsbee commented on the lack of progress on US inflation but remained confident in reaching the 2% core target in a reasonable time frame.
   
• This week, US data has added evidence of sustained economic growth with a tight labor market. This backs the idea that the US central bank will have to keep rates at a restrictive level for a longer time.
   
• Data from Canada reflects a softening inflationary trend, which highlights the diverging monetary policy outlook between the BoC and the Fed.
   
• Bets for a Fed rate cut in July have dropped to 38% from around 50% at the beginning of the week, with investors pricing in 40 bps of cuts in 2024, down from 150 bps in January.