- USD/CAD continues to lose ground for the third day in a row and falls to a low of more than two weeks.
- Bullish crude oil prices benefit the CAD and put pressure on the pair amid weak USD demand.
- Reduced expectations for aggressive Fed rate hikes and a positive risk tone weigh on the safe-haven USD.
The pair USD/CAD witness a continuation of selling for the third day in a row on Tuesday and breaks horizontal support at 1.2865-1.2860 during the European session. The move down has dragged the pair to a more than two-week low around the 1.2830 area and is due to a combination of factors.
The concern over global supply shortagesamid expectations of new sanctions against Russian oil and gas exports that could emerge from the G7 meeting, pushed crude oil prices to a one-week high. This, together with the increase in expectations for a 75 basis point rate hike by the Bank of Canada in July, continued to support the CAD, a commodity-linked currency. Additionally, weak demand for US dollars put some downward pressure on the USD/CAD pair.
The recent drop in commodity prices suggests that inflation is approaching its maximum and forces investors to reduce expectations of a more aggressive tightening of monetary policy by the Fed. Apart from this, a nice recovery in global risk sentiment boosted investor sentiment, which was reflected in a positive tone around equity markets. This was seen as another factor that dented the demand for the dollar as a safe haven.
Risk appetite offered some support to US Treasury yields, which, coupled with recession fears, could help limit deeper losses for the dollar and help limit losses for the US dollar. USD/CAD pair. to investors they remain concerned that rapidly rising interest rates and tightening financial conditions pose a challenge to global economic growth. This could curb any bullish moves in the markets and support the USD.
Having said that, sustained weakness below the 1.2865-1.2860 congestion zone favors the bears and supports the prospects of a further short-term depreciation move for the USD/CAD pair. Traders now await the US economic calendar, in which the Conference Board Consumer Confidence Index and the Richmond Manufacturing Index will be released. Also, US bond yields and risk sentiment in general will drive demand for the dollar.
Market participants will follow the oil price dynamics to take advantage of some short-term opportunities around the USD/CAD pair. That said, investors may refrain from opening aggressive directional positions ahead of the OPEC+ meeting and Fed Chairman Jerome Powell’s comments in a panel discussion later in the week.
USD/CAD technical levels
Source: Fx Street
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