- USD / CAD regains some positive traction on Monday, although it lacks continuation buying.
- A modest decline in oil prices weighs on the CAD and supports the rally in the pair.
- Mixed signals on US inflation and declining US bond yields weigh on the USD and limit the pair’s gains.
The pair USD / CAD remains above the 1.2300 level during the first half of the European session on Monday, although it lacks a strong follow-up buy.
The pair has managed to regain some positive traction on the first day of a new week and has recovered a portion of Friday’s losses. The rebound has been seen supported by a modest decline in crude prices, which tend to weigh on CAD demand, currency linked to the prices of raw materials. That said, a modest weakness in the US dollar has limited any significant gains for the USD / CAD pair, at least for the time being.
Oil prices have struggled to capitalize on the initial rally to the highest level since October 2018, as market participants have become cautious ahead of this week’s OPEC + meeting. In addition, the increase in COVID-19 cases in Asia, to a greater extent, has offset the prospects for a strong recovery in fuel demand and has also prevented investors from opening new bullish positions around black gold.
On the other hand, the USD has been weighed down by mixed signals on US inflation and declining US Treasury yields. Fed Chairman Jerome Powell reiterated the transitory inflation narrative, saying that price pressures should ease themselves. However, data released on Friday showed that the core PCE price index posted the biggest gain since April 1992.
In the meantime, Investors remain concerned that the Fed will tighten its monetary policy if inflationary pressures continue to intensify. This, along with the cautious sentiment prevailing around the stock markets, has acted as a tailwind for the USD, this, in turn, has offered some support to the USD / CAD pair, although the lack of continuation buy orders warrant caution for bulls.
There is no major economic data release on Monday, neither from the United States nor from Canada. Therefore, US bond yields and broader market risk sentiment will play a key role in influencing the USD. Apart from this, the oil price dynamics could also provide some boost to the USD / CAD pair and allow investors to seize some short-term opportunities.
USD / CAD technical levels
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