USD/CAD nears three-week highs at 1.3750 as the US Dollar rallies on risk aversion

• The US Dollar extends gains on risk-averse markets amid rising rumours about Fed Powell's resignation.
• Anxiety about Trump's tariffs is also weighing on the CAD as the August 1 deadline approaches.
• The depressed Oil prices pose additional headwinds on the Loonie.

The US Dollar is retracing previous losses against the Canadian Dollar on Thursday, with markets averse to risk amid rising speculation that Fed Chairman Jerome Powell will be forced to resign under pressure from US President Trump.

Trump said that the possibility of firing the Fed chairman is "highly unlikely," but he admitted to having discussed the possibility with Republican policymakers before stating that he would like him to resign.

Shortly afterwards, he mentioned the possibility of ousting him on fraud charges related to a USD 2.5 billion renovation plan for the central bank's headquarters, which left investors wondering about the future of the Fed chief.

The unprecedented standoff between a US President and the Fed chairman has boosted risk aversion, so far supporting the safe-haven US Dollar.

Beyond that, US Producer Prices Index data revealed that inflationary pressures at factory gates stalled in May, while the yearly inflation moderated to 2.3% from May's 2.6%. These figures soothed fears of another inflationary cycle, triggered by Tuesday's CPI data.

The Canadian Dollar remains on the back foot after Trump set a 35% tariff on Canadian imports, which adds to a 50% levy on Steel and aluminium, while the negotiations for a better deal seem stalled. 

Beyond that, Crude prices, Canada's main export, remain depressed close to the $65.00 level, 3.5% down on the week and more than 15% below late June highs, which adds negative pressure on the CAD.