- A combination of factors sparks aggressive selling around USD/CAD on Friday.
- Rising oil prices benefit the CAD and put pressure on the pair amid a weaker USD.
- Investors now await US PCE and Canadian GDP data for a significant boost.
The pair USD/CAD extends its heavy intraday losses and falls to a three-day low around the 1.2725 region during the first part of the European session. At time of writing, the pair recovers slightly to 1.2747, still down -0.45% on the day.
The pair has extended the previous day’s sharp decline from the 1.2875-1.2880 region, or the highest level since March 9, and witnessed aggressive selling on the last day of the week. This marked the third consecutive day of negative movement for the USD/CAD pair and was due to a combination of factors.
The risk appetite caused a drop around the US dollar haven, which for now appears to have snapped a six-day winning streak in USD/CAD to a five-year high hit on the previous day. Apart of this, a rally in crude oil prices benefits the CADcurrency linked to commodities, and puts pressure on the pair.
The Concerns about falling production in Russia, the world’s second largest exporter, due to sanctions will extend some support to crude oil. In addition, the increased likelihood of Germany joining other European Union member states in an embargo on Russian oil provided a modest boost to black gold.
Having said that, fears that COVID-19 lockdowns could limit fuel demand should limit any significant rise for oil prices crude. On the other hand, the prospects of more aggressive monetary policy tightening by the Fed and a deteriorating global economic outlook should help limit deeper losses for the safe-haven US dollar.
Fundamental Backdrop Favors USD Bulls and support the prospects for some buying at lower levels around the USD/CAD pair. Therefore, any further decline below the 1.2700 round level is likely to find support and remain capped near the very important 200-day SMA, currently around the 1.2650-1.2640 area.
Market participants now await Friday’s economic calendar, highlighted by the release of the US core PCE price index, the Fed’s preferred gauge of inflation, and the Canadian GDP report. This, along with the USD and oil price dynamics, will influence the USD/CAD pair and allow investors to take advantage of some short-term opportunities.
USD/CAD technical levels
Source: Fx Street
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