- USD/CAD moves lower for the second day in a row and falls to a new multi-week low.
- Bullish crude oil prices and an upbeat BoC benefit the CAD and drag the pair lower.
- Geopolitical risks benefit the safe-haven USD and could help limit any further losses.
The pair USD/CAD has fallen to a six-week low at the start of the European session on Thursday, with the bears now looking to break below the 1.2600 round level. At time of writing, the pair quotes at 1.2604, recovering slightly from the 1.2586 low.
The pair struggled to capitalize on its modest intraday rally and found new sales near the region of 1.2655, moving lower for the second day in a row on Thursday. This also marks the fourth day of negative movement in the previous five and is due to a strong rebound in crude oil priceswhich tend to benefit the CAD, a currency linked to commodity prices.
The imposition of Tough sanctions against Russia for its invasion of Ukraine sparked supply concerns and pushed crude oil prices to a new multi-year high. Aside from this, the Bank of Canada’s decision on Wednesday also offered support for the CAD. It is worth remembering that the BoC raised rates for the first time since October 2018 and said they would have to go higher.
On the other hand, Fed Chairman Jerome Powell, during his semiannual testimony before Congress, said that the US central bank would begin to carefully raise interest rates in March. Powell simultaneously promised the Fed could take tougher action if inflation levels don’t ease, though he did little to impress US dollar bulls amid a generally positive risk tone.
Despite growing geopolitical tensions, hopes for ceasefire talks between Russia and Ukraine continued to support a positive tone around stock markets. That said, the worsening situation in Ukraine could act as a tailwind for the safe-haven USD. This, in turn, could help limit the decline in the USD/CAD pair and warrants some caution for bears in the pair.
In fact, news reports suggest that Russia has stepped up bombing of Ukrainian cities and Russian forces have captured the Black Sea port of Kherson. Therefore, the market will focus on the events surrounding the war between Russia and Ukraine. Incoming news will boost risk-off sentiment, which along with oil price dynamics should give the USD/CAD pair a boost.
From a technical perspective, sustained breakout and acceptance below the 100-day SMA could have already set the stage for an extension of the current bearish move in the USD/CAD pair. This, in turn, suggests that any significant rally attempts could be seen as an opportunity to initiate new bearish positions and risk fading rather quickly.
Market participants now await the release of the usual US initial jobless claims data. This, along with Fed Chairman Jerome Powell’s second day of testimony before the Senate Banking Committee, could weigh on the USD. Investors will take further cues from oil price dynamics for some short-term opportunities around the USD/CAD pair.
USD/CAD technical levels
Source: Fx Street
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