- A combination of factors drags USD/CAD lower for the second day in a row on Tuesday.
- Rising oil prices are benefiting the CAD and exerting pressure amid modest USD weakness.
- Aggressive Fed expectations should limit deeper USD losses and offer support for the pair.
The USD pair/CAD extends pullback from yearly high, around the 1.3075-1.3080 area established on Friday, and sees some continuation selling for the second day in a row on Tuesday. The downward move has dragged the pair to a three-day low, close to the 1.2900 level during the European session, and is due to a combination of factors.
Oil prices gained some positive traction and extended the previous day’s bounce from close to a one-month low, amid concerns over global supply shortages, what benefited the CAD, currency linked to raw materials. On the other hand, a positive tone in the stock markets weighed on the US dollar haven and put downward pressure on the USD/CAD pair.
That said, the growing market concern over slowing global economic growth and fuel demand could act as a headwind for oil prices. In addition, the expectations that the Federal Reserve will tighten its monetary policy at a faster pace to curb rising inflation could support the dollar. This should help limit deeper USD/CAD losses, which warrants caution on the bears.
The markets seem to be convinced that the US central bank. will maintain its aggressive policy tightening and have been eyeing another rate hike of 75 basis points at the next meeting from the FOMC in July. Bets were bolstered by a further rise in US Treasuries yields, supporting the outlook for buying to emerge and should support the USD/CAD pair.
Therefore, it would be wise to wait for a strong follow-up sell-off before confirming a short-term top for the USD/CAD pair and positioning for any significant corrective slide. Investors are now awaiting the release of Canada’s monthly retail sales figures, which, along with US existing home sales data, could give the USD/CAD pair some lift.
Source: Fx Street
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