- USD/CAD pulls back further from a multi-week high and is under pressure from a combination of factors.
- The rally in crude prices underpins the loonie and sparks some selling amid a weaker dollar.
- USD intraday selling accelerates after the release of monthly US employment data, which delivered mixed results.
- Aggressive Fed expectations and recession fears limit USD losses and support the pair.
The pair USD/CAD extends its intraday decline and falls to the 1.3115-1.3110 zone, that is, a new daily low during the beginning of the American session. The pair pulls back further from the highest level since Jul 14 touched the previous day and for now they seem to have snapped a three day winning streak.
A good recovery in crude oil prices underpins the commodity-linked loonie. This coupled with a general weakness in the US dollar causes some selling around the USD/CAD pair on Friday. The dollar’s retreat from two-decade highs reached on Thursday accelerates after the publication of the monthly report on employment in the US, which is mixed. In addition, the intraday decline in US Treasury yields and the risk boost put additional downward pressure on the safe haven dollar.
That said, a combination of factors should help limit deeper losses for the USD/CAD pair and warrant some caution before placing aggressive bearish bets. Investors remain concerned that a deeper global economic slowdown and a new COVID-19 lockdown will dent fuel demand, which should act as a headwind for crude prices. Aside from this, expectations that the Fed will continue its aggressive tightening policy should limit the dollar’s decline and support the pair.
Indeed, markets are still pricing in the possibility of a 75 basis point rate hike at the next FOMC monetary policy meeting on 20-21 September. This, in turn, favors the dollar bulls and supports the prospects for some buying around the USD/CAD pair. Therefore, it will be prudent to wait for a sharp decline before confirming that the recent strong move up over the past three weeks has run out and positioning for further losses.
Technical levels
Source: Fx Street
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