USD/CAD moves below 1.3700 as Oil prices rise on potential spread of Gaza war to Lebanon

• USD/CAD losses ground as the commodity-linked Canadian Dollar receives support from the upside of the crude Oil prices.
• Oil prices appreciate due to escalated Cross-border tensions between Israel and Lebanon's Hezbollah.
• US GDP Annualized (Q1) is expected to slightly increase by 1.4%, against the previous growth of 1.3%.

USD/CAD halts its two days of gains, trading around 1.3680 during the European hours on Thursday. The USD/CAD pair struggles as the commodity-linked Canadian Dollar (CAD) receives support from the upside of the crude Oil prices. Noting the fact, Canada is the largest Oil exporter to the United States.

Concerns over the potential spread of the Israel-Hamas war in Gaza to Lebanon have driven up Oil prices. Cross-border tensions between Israel and Lebanon's Hezbollah have been escalating in recent weeks, fueling fears of a conflict that could involve other regional powers, including major Oil producer Iran, according to Reuters.

Headline inflation in Canada rose to 2.9% in May, surpassing estimates that it would drop to a three-year low of 2.6% from April’s 2.7% reading. Additionally, the Bank of Canada’s (BoC) measures of underlying inflation unexpectedly increased to 0.6%, contrary to expectations of staying at 0.2%. This inflation rise is likely to prompt the central bank to proceed cautiously with further rate cuts.

On Friday, Statistics Canada will release the country's GDP (MoM) data, which is expected to show a 0.3% growth for April, compared to the neutral growth observed in March. On the US Dollar's (USD) side, traders await the release of the US GDP Annualized (Q1) due later in the North American session. The report is expected to show a slight increase of 1.4% from the previous growth of 1.3%.

The US Dollar struggles possibly due to traders’ anticipation of Friday’s Core PCE Price Index inflation, projected to decrease year-over-year to 2.6% from the previous 2.8%. This data is seen as the Federal Reserve's (Fed) preferred inflation gauge. Market participants are likely to hope that signs of easing inflation will encourage the Federal Reserve (Fed) to consider rate cuts sooner rather than later.