- A combination of factors dragged USD/CAD lower for the second day in a row on Monday.
- Reducing bets on an aggressive Fed interest rate hike and positive risk tone weighed on the dollar.
- The rally in oil prices underpinned the loonie and put additional pressure on the pair.
The pair USD/CAD extended last week’s sharp pullback from the 1.3225 region, or the highest level since November 2020, and witnessed selling for the second day in a row on Monday. The bearish trajectory dragged the pair further below the psychological level of 1.3000 during the early American session and was sponsored by a combination of factors.
Diminishing odds of the Federal Reserve raising rates more aggressively, coupled with signs of stability in financial markets, dragged the safe-haven US dollar off its two-decade highs. Elsewhere, a nice rebound in oil prices has helped to strengthen the commodity-linked British currency and caused some selling in the USD/CAD pair on Monday.
Two of the FOMC’s toughest members – Fed Governor Christopher Waller and St. Louise Fed President James Bullard – declared last Thursday that they were not in favor of a further rate hike. This, in turn, forced investors to lower their expectations of a 100 basis point Fed rate hike in July, which continued to act as a dollar headwind.
The weakening USD and tight global supplies helped offset recession fears, which, coupled with further COVID-19 lockdowns in China, had raised concerns about the outlook for fuel demand. Additionally, the Bank of Canada’s surprise interest rate hike of 100 basis points last week offered some support to the loonie and put downward pressure on the USD/CAD pair.
With the latest leg lower, spot prices have reversed last Thursday’s strong move higher and have approached the bottom of the post Bank of Canada swing. The mentioned zone, around the 1.2935-1.2930 region, should act as a pivot point, which if broken decisively would be seen as a new trigger for bearish traders and pave the way for further losses.
In the absence of any major economic releases, broader market risk sentiment could boost dollar demand. Aside from this, traders will look to oil price dynamics to take advantage of short-term opportunities around the USD/CAD pair.
Technical levels
Source: Fx Street
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