USD/CAD approaches the mid-1.3700s, nearing a two-week high, on the back of broad-based USD strength

The USD/CAD pair recovers from an early drop to the 1.3680 zone and enters positive territory for the sixth consecutive trading day on Thursday. During the early European session, spot prices reach a one-and-a-half-week high near the mid-1.3700s and appear ready to extend the recent rebound from sub-1.3500 levels.

The underlying bullish mood surrounding the US dollar, supported by the Federal Reserve's more hawkish posture, proves to be a crucial driver supporting the USD/CAD pair. To confront persistently high inflation, the US central bank raised rates by 75 basis points for the fourth time in a row. In addition, Fed Chair Jerome Powell shattered expectations for a dovish reversal by stating that interest rates would need to climb more than anticipated.

A fresh advance in US Treasury bond rates bolsters the likelihood of additional Fed policy tightening and continues to operate as a tailwind for the dollar. Additionally, a milder risk tone lends a further lift to the safe-haven dollar. A small decline in crude oil prices from their three-week high is expected to weaken the commodity-linked Canadian dollar. This, in turn, increases the likelihood of a further near-term USD/CAD appreciation.

Even from a technical standpoint, the overnight surge following the FOMC meeting has pushed spot prices over the 1.3670-1.3685 barrier zone. A following strength and acceptance over the 1.3700 level strengthens the positive bias and favors bullish traders, indicating that the USD/CAD pair's path of least resistance is to the upside. The US ISM Services PMI, coupled with US bond yields, will push the USD and add impetus to the main currency.