USD/CAD rallies to 1.3680 as the market focuses on a hawkish Fed

• The US Dollar extends its recovery for the second consecutive day, supported by strong US data.
• Upbeat US business activity and Jobless Claims support the Fed's "wait and see" rhetoric.
• In Canada, the weak Retail Sales data keep hopes for a BoC rate cut alive.

The US Dollar is rallying for the second day in a row against a weaker Canadian Dollar. The strong US business activity and Jobless claims figures have given further reasons to the Fed to keep rates on hold next week, which has sent US Yields and the US Dollar higher.

The pair is trading at 1.3670 at the time of writing after having hit an intra-day high at 1.3780 earlier today. The broader trend remains bearish with the weekly chart showing a nearly 0.3% decline, but the higher lows posted over the last few weeks suggest that the pair might have found a bottom.

Hopes of a hawkish Fed are supporting the USD

The fundamental context has turned moderately USD supportive. US data released on Thursday showed a larger-than-expected improvement in the services sector, which offset the unexpected contraction in manufacturing activity.

Beyond that, weekly Jobless claims fell for the sixth consecutive week last week, confirming that the labour market remains resilient, and backing the views that the Fed will stand pat at next week's meeting. The USD/CAD has rallied more than 0.4% following Thursday's data.

The Bank of Canada is also meeting next week, and a further rate cut, although unlikely, has not been completely discarded, and June's Retail Sales figures did little to dissipate those views. Retail sales declined by 1.1% in May, in line with the market forecasts, following a 0.3% increase in April.