- USD/CAD gains strong continuation traction on Friday and rises to a 22-month high.
- Bearish oil prices weigh on the CAD amid renewed demand around the USD.
- The fundamental and technical background supports the prospects of a further upward movement in the pair.
The pair USD/CAD extends this week’s strong recovery from near the 1.2900 region and gains strong continuation traction on Friday. The momentum drives the torque to its highest level since November 2020with the bulls now aiming to retake the 1.3300 level.
Crude oil prices weaken near weekly lows, what weighs on the CAD, a currency linked to commodity prices, and which in turn acts as a tailwind for the USD/CAD pair. Apart from this, the appearance of new purchases around the US dollar provides additional momentum and contributes to the pair’s upside momentum.
Investors continue to worry that a deeper global economic downturn, coupled with new COVID-19 lockdowns in China, take a toll on fuel demand. This largely overshadows concerns about tight global supply and weighs on black gold, which remains on track for a third straight week of losses.
The dollar, for its part, seeks to take advantage of the recovery inspired by the US CPI amid the growing Expectations for a more aggressive tightening of the Fed’s monetary policy. This, coupled with the risk aversion momentum, leads to some safe haven money flows into the US dollar and offers additional support to the USD/CAD pair.
Friday’s strong momentum could also be attributed to some technical buying after the previous day’s sustained strength and close above the 1.3200 level. A subsequent move above the previous yearly high could be seen as a new trigger and could have set the stage for further gains.
Market participants are now awaiting the preliminary US Michigan Consumer Sentiment Index to be released later at the start of the North American session. This coupled with US bond yields and broader risk sentiment will weigh on the dollar and provide a further boost to the USD/CAD pair.
USD/CAD technical levels
Source: Fx Street
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