- USD/CAD extends pullback from yearly high hit on Friday amid modest USD weakness.
- Aggressive Fed expectations and recession fears could continue to act as a tailwind for the USD.
- Falling oil prices could weigh on the CAD and help limit deeper losses for the pair.
The USD pair/CAD has seen some sales on the first day of the new week and has moved away from the new yearly highs, around the 1.3075 area touched on Friday. The pair maintains its selling tone during the first half of the European session and now flirts with the daily low, around the region of 1.2985.
The Fed forecast that the interest rate would fall to 3.4% in 2024 and 2.5% in the long term, from 3.8% forecast for 2023, which was considered a key factor behind the recent and Sharp drop in US Treasury bond yields. Apart from this, concerns that more aggressive policy tightening by the Federal Reserve would challenge US economic growth kept dollar bulls on the defensive. This, in turn, put some downward pressure on the USD/CAD pair, although a significant decline seems unlikely.
Oil prices weakened near their one-month lowamid concerns that weakening global economic growth will dampen demand for the fuel. This could weigh on the CAD, a commodity-linked currency, and act as a tailwind for the USD/CAD pair. Also, acceptance of the Federal Reserve raising interest rates at a faster pace to curb rising inflation favors dollar bulls. This, in turn, supports the prospects for some buying around the USD/CAD pair and warrants caution on the bears side.
In the absence of market-relevant economic releases, investors will be guided by the St. Louis Fed President’s scheduled speech, James Bullard, which could influence the dollar. Additionally, traders will be guided by the oil price dynamics to take advantage of some short-term opportunities around the USD/CAD pair, against a backdrop of relatively low trading volumes due to the US holiday.
USD/CAD technical levels
Source: Fx Street
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