USD/CAD falls back towards 1.2685, geopolitics still in the spotlight

  • USD/CAD saw choppy trading conditions on Thursday and was once again sideways around 1.2680, having hit 1.2734.
  • Geopolitics remains the main topic of conversation in the market, with investors nervous as relations between NATO and Russia deteriorate and bombing in Ukraine resumes.

The USD/CAD experienced choppy and indecisive trading conditions on Thursday, rallying as high as 1.2735 where it was trading roughly 0.4% higher at the time, before pulling back to trade sideways at 1.2685 in recent trade. Geopolitics remains the main talking point in the market at the moment, with investors nervous at the prospect of bombing between Ukraine’s armed forces and pro-Russian separatists across a ceasefire line in eastern Ukraine. turn into a broader conflict between Russia and Ukraine. NATO leaders have further amplified their warnings that Russia appears to be on the brink of military action against Ukraine, warning that the country is seeking to fabricate a pretext for invasion.

These fears currently weigh heavily in the global equity space, but currency markets have been able to mostly resist the risk-off flows seen across other asset classes on Thursday. That could be because Wednesday’s Fed meeting minutes, as well as Thursday’s weaker-than-expected weekly jobless claims and February’s Philadelphia Fed output, have diminished the dollar’s safe-haven appeal. American for now. But after recent bullish inflation surprises and more aggressive comments from the Fed’s James Bullard, traders will be watching closely what other Fed policymakers have to say in the coming days.

Any hint of support for a 50bps rally in March, combined with ongoing geopolitical risk aversion, could help push USD/CAD back above 1.2700 before the week is out. Note, however, that the Canadian dollar’s high correlation with crude oil prices, which would be expected to rally in the face of a Russian invasion of Ukraine, means that in a flight to safe havens, it would not underperform as much as the Canadian dollar. of some risk-sensitive peers. A retest of this year’s triple top near 1.2800 seems unlikely if, for example, a conflict between Russia and Ukraine sends WTI above $100.

Technical levels

Source: Fx Street

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