- A combination of support factors pushed USD / CAD to near month-long highs on Thursday.
- The Fed’s phase-down plan and risk aversion acted as a tailwind for the safe-haven dollar.
- An extension of the drop in crude oil prices undermined the loonie.
The pair USD / CAD it now appears to have entered a bullish consolidation phase and was seen swinging in a range above 1.2750, or near the month-long highs touched earlier this Thursday.
The pair built on its recent bounce from the key psychological level of 1.2500 and gained strong follow-up traction for the fourth day in a row. The momentum pushed the USD / CAD pair to the highest level since July 20 and was sponsored by a combination of factors.
Investors now appear to be convinced that the Fed is comfortable rolling back the crisis-era stimulus. In fact, Minutes from the July FOMC meeting released on Wednesday revealed policymakers’ assessment that progress was made toward maximum employment and price stability targets.
Expectations that the Fed will start reducing its asset purchases sooner rather than later, coupled with the prevailing environment of risk aversion, pushed the safe-haven US dollar to a nine-month high. This, in turn, was seen as a key factor that continued to propel the USD / CAD pair higher.
The USD maintained its offered tone during the early days of the American session and appeared unaffected by the mixed macroeconomic data from the US. Weekly jobless claims in the US fell to 348,000 from 377,000 previously, while the The Philadelphia Fed’s manufacturing index fell to 19.4 in August from 21.9.
On the other hand, the Canadian dollar pegged to commodities was undermined by a further decline in crude oil prices. Concerns that the rapidly spreading Delta variant of the coronavirus could derail the global economic recovery and take a toll on fuel demand, dragged oil prices near three-month lows.
Meanwhile, the oscillators on the hourly charts are already showing extremely overloaded conditions and have also started to move towards the overbought zone on the daily chart. This seemed to be the only factor preventing the bulls from placing new bets and limiting gains for the USD / CAD pair.
However, the fundamental backdrop remains firmly tilted in favor of bullish traders and supports prospects for an extension of the recent positive move. Therefore, any significant drop could be seen as a buying opportunity and remain limited, at least for now.
Technical levels
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