- A combination of factors helps USD/CAD bounce back quickly from the 1.3600 zone.
- Weakening crude oil prices weigh on the CAD and offer support amid renewed USD demand.
- The pullback in US bond yields could cap dollar gains and warrants caution for pair bulls.
The pair USD/CAD finds decent support near the 1.3600 level and recovers solidly from the two-week low reached this Monday at 1.3606. The strong positive intraday movement makes the pair break back above the 1.3700 level during the European session and is due to a combination of factors.
Uncertainty about headwinds stemming from China’s zero covid policy and growing recession fears dampen fuel demand outlook. This, in turn, causes fresh selling around WTI crude oil, weighing on CAD, currency linked to raw materials. Furthermore, the resurgence in demand for the US dollar offers support to the USD/CAD pair and continues to support the intraday recovery move.
The pair reverses some of Friday’s sharp decline, though a further pullback in US Treasury yields could act as a dollar headwind and limit the pair’s gains USD/CAD. In fact, the benchmark 10-year US government bond yield retreated further from a 15-year high on news that some Fed officials are signaling further discomfort with oversized rate hikes.
The Wall Street Journal article indicated that the Fed could debate whether and how to signal its plans to approve a smaller hike in December. It also reported that policymakers want to stop raising rates early next year to see how their moves slow down the economy and to reduce the risk of triggering an unnecessarily sharp slowdown. This, in turn, is dragging down US bond yields.
The mixed fundamental background warrants caution before opening new bullish positions around the USD/CAD pair and positioning for any further intraday appreciation moves. Investors are watching preliminary US PMI data, which, along with US bond yields, will boost demand for the dollar. Furthermore, the dynamics in oil prices could help create short-term opportunities around the USD/CAD pair.
USD/CAD technical levels
Source: Fx Street
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