- A combination of factors drags USD/CAD lower for the third day in a row on Tuesday.
- Fading expectations of a 100 basis point Fed rate hike in July keep USD bulls on the defensive.
- The recovery in oil prices benefits the CAD and contributes to the selling bias in the pair.
The pair USD/CAD has struggled to take advantage of the previous day’s nice bounce from levels below 1.2900 at an almost two-week low, and has been met with new sales on Tuesday. The pair maintains its downward movement during the European session and is now trading near the daily low around the 1.2950 level.
The US dollar weakened just above the one-week lows hit Tuesday amid the decreasing odds of a 100 basis point rate hike by the Fed at the next meeting on June 26 and 27. It should be remembered that several members of the Federal Open Market Committee (FOMC) declared last week that were not in favor of a further rise in interest rates that the markets expected after the publication of rising US consumer inflation.
The moderation in dollar prices, coupled with continued concerns about global supply shortages, helped crude oil prices maintain strong gains of the previous day up to a maximum of several days. This, in turn, has benefited the CAD, a commodity-linked currency, has dragged the USD/CAD pair lower for the third day in a row. However, a combination of factors could stop the bears from opening aggressive positions.
Investors remain concerned that rising crude prices will cause a recession that will wipe out demand, which should act as a headwind for black gold.. In addition, market participants seem convinced that the recent increase in consumer inflation in the US, which reached the highest level in the last four decades in June, will force the Fed to apply a higher rate hike to throughout the year. This should limit the fall of the dollar.
Even from a technical point of view, the appearance of new buying at lower levels adds credibility to the positive short-term outlook. Therefore, it will be prudent to wait for sustained weakness below the 1.2900 level before confirming that the USD/CAD pair has topped in the short term. This would set the stage for an extension of the recent pullback from the yearly high.
Market participants now await US housing market data, with the release of building permits and housing starts, to be released later at the start of the American session. These data could influence the demand for the dollar, which together with the dynamics of oil prices, should give some momentum to the USD/CAD pair.
USD/CAD technical levels to watch
Source: Fx Street
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