- USD/CAD rises for the second day in a row and is supported by a combination of factors.
- A modest drop in Oil prices weakens the Loonie and acts as a tailwind amid a stronger USD.
- Bets on an imminent pause in the Fed’s rate hikes could stop bulls from making new bets and limit gains.
The pair USD/CAD attracts new buying after an intraday drop to the 1.3340 zone and turns positive for the second day in a row on Monday. The pair is approaching 1.3400 again during the North American session, with bulls now waiting to break above the 200-day SMA before positioning for an extension of Friday’s bounce from a two-month low.
Crude oil prices start the week softly amid concerns that a deeper global economic downturn will dent demand for the fuel, which, in turn, undermines the commodity-linked Loonie. The dollar, for its part, is recovering from the one-year lows reached on Friday, given the possibility that the Federal Reserve (Fed) will continue to raise interest rates. This is seen as another factor acting as a tailwind for the USD/CAD pair and remains supportive for the intraday positive move.
In fact, markets are currently pricing in a higher probability of another 25 basis point hike at the next FOMC meeting in May. Bets were boosted by the preliminary report from the University of Michigan, which showed rising near-term inflation expectations for the month of April. In addition, Fed Governor Christopher Waller called for further rate hikes on Friday, saying the job was not done yet as inflation remains too high. This continues to push US Treasury yields higher and sends the dollar higher for the second day in a row.
Investors, however, remain convinced that the US central bank will pause its rate hike cycle sooner rather than later amid signs of easing inflationary pressures. In fact, the US CPI and PPI, released last week, indicate that disinflation is proceeding smoothly. This, coupled with a positive risk tone, could limit the safe haven of the USD and any significant upside for the USD/CAD pair.
Technical levels to watch
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
