- A combination of factors dragged USD / CAD lower for the second day in a row.
- Rising oil prices sustained the Canadian dollar and acted as a headwind for the pair.
- A softer US CPI report weighed on the USD and contributed to intraday selling.
The pair USD / CAD saw some selling during the early days of the US session and fell to the 1.2600 level, or two-day lows in reaction to the softer-than-expected US CPI report.
After a brief consolidation during the first half of trading action on Tuesday, the USD / CAD pair encountered new offers and was down for the second day in a row. WTI crude oil soared to the highest level since August 3, closer to $ 71.00 / barrel, and kept the Canadian dollar pegged to commodities supported.
On the other hand, the US dollar extended the retracement decline of the previous day and fell to one-week lows following the release of US consumer inflation figures. Headline CPI disappointed expectations and slowed to 0.3% in August from 0.5% in the previous month. On an annual basis, the CPI fell to 5.3%, as anticipated.
Meanwhile, core inflation, which excludes food and energy prices, disappointed consensus estimates and posted a modest 0.1% increase during the reported month. More importantly, the annual core CPI fell to 4% from 4.3% in July and dashed hopes of an imminent announcement of the Fed’s phase-down at the next policy meeting on September 20-21.
This was evident from a modest intraday pullback in US Treasury yields. Aside from this, the underlying bullish sentiment in financial markets could act as a headwind for the safe-haven dollar. The fundamental context favors bearish traders and supports the prospects for a further decline in the USD / CAD pair.
However, hopes that the Fed will eventually begin to roll back its massive pandemic-era stimulus later this year could provide some support to the dollar. This makes it prudent to wait for a follow-up sell below last Friday’s lows, around the 1.2585-80 region, before placing aggressive bearish bets.
Technical levels
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