- USD/CAD pulls back a few points from its highest level since June 2020, reached on Monday.
- The USD gives up its intraday gains to a two-decade high and acts as a headwind for the pair.
- The Fed’s aggressive rate hike bets and rising US bond yields should cap any significant dollar pullback.
- Crude oil price bearishness could undermine the loonie and supports prospects for additional earnings.
The pair USD/CAD attracts some sellers near 1.3700 and pulls back a few points from its highest level since June 2020 touched during the first North American session. The pair is now trading around the 1.3635-1.3630 area, and is up 0.30% on the day.
The US dollar gives up a significant portion of its intraday gains to a two-decade high and turns out to be a key factor acting as a headwind for the USD/CAD pair. The dollar pullback could only be attributed to profit taking amid a strong sterling rally and extreme overbought conditions.
That said, the growing acceptance that the Fed will tighten monetary policy at a faster pace should limit the USD’s corrective pullback. It is worth remembering that the Fed signaled last week that it will probably carry out more aggressive hikes in its next meetings to control inflation.
The Fed’s outlook, which is very rosy, has pushed the rate-sensitive 2-year US government bond yield to a 15-year high and the Treasury yield to 10-year benchmark, to its highest level in 11 years. This, coupled with the prevailing risk environment, should continue to drive safe-haven demand for the dollar.
Additionally, bearish sentiment surrounding crude oil prices, amid fears that a deeper global economic downturn will affect fuel demand, is undermining the commodity-linked loonie. This, in turn, supports the prospects for further short-term appreciation of the USD/CAD pair.
In the absence of major economic releases from both the US and Canada, traders will be guided by speeches from influential FOMC members on Monday. This coupled with US bond yields and broader risk sentiment will weigh on the dollar and give the USD/CAD pair momentum.
Technical levels to watch
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
