- Relentless USD buying pushed USD/CAD to a new multi-week high on Thursday.
- The disappointing US GDP release capped the upside in USD and spot prices.
- Softer crude oil prices, aggressive Fed rate hike bets support prospects for further earnings.
The pair USD/CAD pared some of its intraday gains during the early American session and was last seen trading in the 1.2855-1.2860 region, just a few pips below the highest level since March 9.
The pair attracted fresh buying near 1.2800 on Thursday and continued its recent strong rally seen over the past week or so amid incessant US dollar buying. Investors seem convinced that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation and have priced in a 50bp rate hike at the next meeting on May 3-4.
Markets also expect the US central bank to continue its monetary policy when it meets again in June and July, ultimately raising rates to around 3.0% by the end of the year. The USD, however, pulled back a bit from a five-year high following the disappointing release of the US GDP report, which showed the economy unexpectedly contracted by 1.4% during the first quarter.
That said, additional details revealed that the GDP price index accelerated to 8% in the first quarter and reaffirmed prospects for rapid rate hikes from the Fed. This, coupled with a new edge in bond yields of the US Treasury, acted as a tailwind for the dollar. On the other hand, a softer tone around crude oil prices undermined the commodity-linked Canadian dollar and offered additional support to the USD/CAD pair.
This, in turn, favors the bulls and supports the prospects of a move back to test the yearly high around 1.2900 hit in March. Some follow-on buying will mark a new breakout to the upside and set the stage for another short-term appreciation move for the USD/CAD pair. This, in turn, suggests that any significant pullback could still be seen as a buying opportunity.
Technical levels
Source: Fx Street
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