- USD/CAD hits a two-year high and now appears to have entered a bullish consolidation phase.
- An intraday move higher in oil prices underpins the loonie and acts as a headwind for the pair.
- Sustained dollar buying remains supportive as traders look forward to the FOMC decision.
The pair USD/CAD appears to have entered a phase of bullish consolidation and is seen to be trading in a range just below the two-year highs reached this Wednesday. 1.3400 remains a key hurdle for the pair as attention remains focused on the expected FOMC policy decision to be announced later in the US session.
The US central bank is expected to maintain its aggressive tightening policy to control inflation and offer another 75 basis point rate hike at the end of its two-day meeting on Wednesday. This, in turn, pushes the US dollar to a new 20-year high and turns out to be a key factor that continues to act as a tailwind for the USD/CAD pair.
That said, risk-on momentum – as evidenced by the generally positive tone around equity markets – acts as a headwind for the safe-haven greenback ahead of key central bank event risk. Aside from this, a nice rebound in crude oil prices underpins the commodity-linked loonie and helps limit USD/CAD gains, at least for now.
Russian President Vladimir Putin announces a partial military mobilization, raising geopolitical risks and concerns about lower global oil supplies. This, in turn, helps oil prices gain some positive intraday traction. However, concerns that a further global economic downturn will affect fuel demand prevents black liquid from rising significantly.
The fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside. However, traders prefer to wait for a more hawkish outlook from the Fed before positioning themselves for an extension of the appreciation move. Therefore, the focus will be on the updated economic projections, the dot chart and Fed Chairman Jerome Powell’s post-meeting press conference.
Technically, the recent strong move up seen over the last week and a half or so stalls near resistance marked by the top of a multi-month ascending channel. This warrants some caution before placing aggressive bullish bets on the USD/CAD pair.
Technical levels
Source: Fx Street
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