- A good recovery in USD demand helps USD / CAD to recover from the two-week lows.
- The optimistic US economic outlook and softer risk tone benefit the safe-haven USD.
- A rebound in crude oil prices benefits the CAD and could limit the pair’s rise.
The pair USD / CAD moves higher during the European session on Tuesday, rising to the zone of daily highs around the 1.2550 level.
Having defended the key psychological level of 1.2500 on Monday, the pair has staged a good rally from the two-week lows and has seen supported by a sudden spike in demand for the US dollar. Despite the continued decline in US Treasury yields, the USD has captured new buying during the first half of Tuesday’s trading action and has offered some support to the USD / CAD pair.
Investors are still optimistic about the US economic outlook. amid the impressive rate of vaccination against the coronavirus and the spending plan of US President Joe Biden. Monday’s upbeat US ISM services PMI added to the narrative of a relatively faster US economic recovery from the pandemic. This, Along with a weaker risk tone, it has caused some safe-haven monetary flows to turn back towards the dollar..
Meanwhile, reflation trading has been fueling speculation about a spike in US inflation and has sparked doubts the Fed will keep interest rates ultra-low for a longer period. This should help limit any significant drop in US bond yields, supporting the prospects for additional gains for the USD and an extension of the intraday move higher for the USD / CAD pair.
Nevertheless, a positive tone around crude oil prices has benefited the loonie and could become the only factor limiting the gains of the USD / CAD pair. That said, concerns that the third wave of COVID-19 infections and pandemic-related restrictions in Europe could hamper the expected recovery in crude and should limit black gold gains.
In the absence of major economic releases from either the US or Canada, USD price dynamics will continue to play a key role in influencing intraday movement. However, the combination of factors suggests that the path of least resistance for the USD / CAD pair is to the upside and intraday declines will now be seen as a buying opportunity.
USD / CAD technical levels