- USD / CAD remains trapped in a range during the first half of trading action on Tuesday.
- A pullback in oil prices weighs on the CAD and offers some support amid a stronger USD.
- The fundamental backdrop supports the prospects for an extension of the recent recovery movement.
The pair USD / CAD lacks a firm directional bias on Tuesday and moves within a narrow range, below the 1.2400 level during the European session.
The pair, so far, has struggled to capitalize on its recent rebound from four-month lows touched last week and has held tight near the 1.2400 level, although a combination of factors has acted as a tailwind. A modest decline in crude prices from multi-year highs has weighed on the CAD, currency linked to the prices of raw materials. This, coupled with a rebound in demand for the US dollar, has offered some support to the USD / CAD pair.
The USD got some support from the emergence of strong selling around the common currency. This occurs in the midst of expectations of an early tightening of monetary policies by the Fed, which has helped the USD take advantage of the previous day’s bounce from month-long lows. Fed Chairman Jerome Powell reiterated Friday that the US central bank remains on track to begin reversing its massive pandemic-era stimulus.
In addition, the recent widespread rebound in commodity prices has been fueling the speculation about a possible rise in interest rates in 2022. Investors now seem convinced that the Fed would be forced to adopt a more aggressive monetary policy response to contain stubbornly high inflation. However, the fundamental backdrop favors the pair’s bulls and supports the prospects for some significant bullish movement for USD / CAD.
Market participants are now looking forward to the US economic calendar, which includes releases from the Conference Board Confidence Index, the Richmond Manufacturing Index, and new home sales. This, coupled with US bond yields and broader market risk sentiment, could weigh on the USD. Investors will take the indications of oil price dynamics for some short-term momentum around the USD / CAD pair.
USD / CAD technical levels