- USD/CAD gains ground for the second day in a row and approaches weekly high.
- The pullback in crude oil prices weighs on the CAD and supports the upside move in the pair.
- An aggressive Fed and recession fears favor USD bulls and support prospects for further gains in the pair.
The pair USD/CAD has built on the positive movement of the previous day and has gained some traction for the second day in a row on Thursday. Momentum has allowed the pair to break above the 1.2900 levelapproaching the weekly highs again at the beginning of the European session.
The sharp pullback in crude oil prices during the previous day weakened the CAD, linked to commodities, and turned out to be a key factor that acted as a tailwind for the USD/CAD pair. It should be remembered that on Wednesday black gold experienced an intraday reversal from a one and a half week high after the US Energy Information Administration (EIA) reported an increase in fuel reserves. The report also showed that US refineries increased production and are operating at 95% capacity. This is due to concerns about slowing economic growth and easing concerns about tight supplies, which continue to weigh on raw materials.
Having said that, modest US dollar weakness could cap any significant rise in USD/CAD, although the bias seems to be in favor of the bulls. Fed Chairman Jerome Powell speaking at the central bank’s annual forum on Wednesday, reaffirmed bets on more aggressive rate hikes and said the US economy is well positioned to handle tougher policy. Powell added that the Fed remains focused on getting inflation under control and market prices are pretty close to the dotted chart. This, coupled with rising recession fears and the prevailing risk environment, should continue to support the safe-haven dollar.
Market participants now await the US economic calendar, in which the core PCE price index (the Fed’s preferred gauge of inflation) and the usual weekly initial jobless claims will be released. This, coupled with US bond yields and general market risk sentiment, will fuel dollar demand and provide some lift to the USD/CAD pair. Investors will follow the dynamics of oil prices to take advantage of some short-term opportunities around the pair.
USD/CAD technical levels
Source: Fx Street
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