- A combination of factors help USD/CAD regain positive traction on Monday.
- The drop in oil prices weakens the CAD and offers its support amid a stronger USD.
- Expectations of an aggressive Fed rate hike and a softer risk tone push the USD closer to 20-year highs.
The pair USD/CAD attracted fresh buying near the 1.2940 area on Monday and, for the time being, appears to have stopped its pullback from last week’s high. The pair maintained its bullish tone throughout the European session and is now trading near the daily high, just below the psychological level of 1.3000.
Investors continued concerned about prospects for fuel demand amid growing fears about a possible global recession and the latest outbreak of COVID-19 in China. This largely overshadowed concerns about global supply shortages and put some downward pressure on crude oil prices, which in turn weighed on the CAD, currency linked to raw materials. Apart from this, the appearance of new buying around the US dollar provided a good boost to the USD/CAD pair on the first day of a new week.
After Friday’s modest pullback from its two-decade highs, the US dollar was demanded again amid growing acceptance that the Fed will maintain its tightening policy. Expectations were bolstered by FOMC minutes released last Wednesday, which indicated that another rate hike of 50 or 75 basis points was likely at the July meeting. In addition, the positive monthly US employment report reinforced the Fed’s expectations and continued to support the buying tone surrounding the dollar.
The prospects of more aggressive rate hikes by the Fed pushed the benchmark 10-year US bond yield back above the 3% level. This, coupled with a weaker risk tone, offered additional support to the dollar as a safe haven. The fundamental background supports the prospects for a further near-term move higher for the USD/CAD pair. That said, the bulls might refrain from opening new positions and would rather wait for key data this week.
The latest US CPI consumer inflation figures will be released on Wednesday, followed by the Bank of Canada’s monetary policy decision. Additionally, monthly retail sales data and preliminary consumer sentiment for Michigan will be released on Friday. These data will play a key role in driving demand for the dollar in the short term. This coupled with the oil price dynamics will help investors determine the next directional move for the USD/CAD pair.
USD/CAD technical levels
Source: Fx Street
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