USD/CAD Down from Two-Year High, But Upside Potential Remains Intact

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  • 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.

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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.

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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

USD/CAD

Overview
last price today 1.3633
Today I change daily 0.0039
Today’s daily variation in % 0.29
Daily opening today 1.3594
Trends
daily SMA20 1.3202
daily SMA50 1.3014
daily SMA100 1.2939
daily SMA200 1.2811
levels
Previous daily high 1.3613
Previous Daily Low 1.3468
Previous Weekly High 1.3613
Previous Weekly Low 1.3227
Previous Monthly High 1.3141
Previous Monthly Low 1.2728
Daily Fibonacci of 38.2%. 1.3557
Fibonacci 61.8% daily 1.3523
Daily Pivot Point S1 1.3504
Daily Pivot Point S2 1.3414
Daily Pivot Point S3 1.3359
Daily Pivot Point R1 1.3648
Daily Pivot Point R2 1.3703
Daily Pivot Point R3 1.3793

Source: Fx Street

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