- USD/CAD reversed an intraday decline to levels below 1.2600, or above a two-week low.
- The resurgence in USD demand turned out to be a key factor that extended some support.
- Steady oil prices, upbeat Canadian data supported the loonie and capped gains.
The pair USD/CAD built on its steady intraday recovery move from a more than two-week low and rose to a fresh daily high, around the 1.2635-1.2640 region during the early American session.
A combination of factors helped the USD/CAD pair attract some buying on the last day of the week and reverse the initial decline to levels below 1.2600. A nice uptick in US dollar demand acted as a tailwind for spot prices. Aside from this, an intraday pullback in crude oil prices undermined the commodity-linked Canadian dollar and provided a modest lift to the pair.
Investors turned cautious amid lack of progress in peace talks between Russia and Ukraine. In fact, the Ukrainian presidential adviser Ihor Zhovkva said that the talks with Russia are progressing very slowly. Russia has accused Ukraine of delaying the peace talks and said it wants to go at a faster pace, although the Ukrainian delegation has shown no willingness to speed up the talks.
This, in turn, moderated investors’ appetite for perceived riskier assets ahead of a meeting between US President Joe Biden and his Chinese counterpart Xi Jinping. Market nervousness was evident from a softer tone in equity markets, which fueled some safe-haven flows into the dollar. Aside from this, the Fed’s hawkish outlook further underpinned the dollar.
Adding to the flow of risk aversion, concerns about reduced fuel demand, amid a resurgence of COVID-19 cases in China, Europe and New Zealand, weighed on crude prices. That said, the intraday drop in liquid black remained limited. This coupled with better-than-expected Canadian macro data benefited the domestic currency and capped the USD/CAD pair.
According to data released by Statistics Canada, overall retail sales increased at a pace of 3.2% month-on-month in January against the general estimate of 2.4% growth. This is due to higher-than-expected Canadian consumer inflation figures, which should further increase pressure on the Bank of Canada to accelerate rate increases.
The fundamental backdrop warrants some caution before confirming that the USD/CAD pair has bottomed or is positioning for any significant appreciation move. With that being said, bearish traders are likely to look for a sustained break below the 200-day SMA. Some follow-through selling below the monthly low around the 1.2585 region will set the stage for further losses.
Technical levels
Source: Fx Street
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