- USD/CAD extended the overnight retracement from a 20-month high and was lower on Friday.
- Less aggressive comments from Fed officials weighed on the dollar and put pressure on it.
- Bearish sentiment around oil prices could undermine the loonie and help limit the downside.
The pair USD/CAD attracted some selling near the 1.3135 area on Friday and pulled back further from its highest level since November 2020 hit the day before. The modest intraday drop extended throughout the first half of the European session and dragged spot prices below 1.3100, although it did not continue.
The US dollar continued the overnight pullback from two-decade highs and came under pressure as the chances of a more aggressive tightening of monetary policy by the Federal Reserve diminished. On Thursday, two of the Federal Reserve’s monetary policy makers took issue with market expectations of a 100 basis point rate hike later this month. This caused a further decline in US Treasury yields, which, in turn, acted as a dollar headwind and put some downward pressure on the USD/CAD pair.
On the other hand, the slight recovery in global risk sentiment, reflected in signs of stability in equity markets, dented the safe-haven status of the dollar. That said, the worsening global economic outlook could dampen optimism and continue to support the dollar. Investors remain concerned that rapidly rising borrowing costs, the ongoing Russia-Ukraine war and further COVID-19 cutbacks in China will challenge global growth.
Fears were fueled by the dismal second-quarter Chinese GDP data released on Friday. This comes after Bank of America economists forecast a “mild recession” in the US this year. This, in turn, has raised concerns about the outlook for fuel demand and slowed oil prices’ attempt to recover from Thursday’s five-month low. The bearish sentiment surrounding liquid black could undermine the commodity-linked loonie and give the USD/CAD pair more support.
Technical levels
Source: Fx Street
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