- The USD / CAD witnessed further selling on Friday and reversed a significant portion of the gains overnight.
- The renewed weakness of the USD turned out to be a key factor that acted as a headwind for the pair.
- A rebound in oil prices sustained the loonie and further contributed to intraday sales.
The pair USD / CAD it remained depressed during the first half of the European session and was last seen hovering near the lower limit of its daily trading range, below 1.2350.
The pair struggled to capitalize on the previous day’s solid bounce of nearly 100 pips from levels below 1.2300, or four-month lows, instead meeting new offers on the last day of the week. The emergence of new selling around the US dollar was seen as a key factor acting as a headwind for the USD / CAD pair. Apart from this, a modest rally in crude oil prices sustained the Canadian dollar pegged to commodities and contributed to the intraday selling bias.
Reports that China Evergrande made funds available for a bond coupon in a trust account helped ease concerns about a credit crunch in China’s real estate sector. This, coupled with signs of stability in equity markets, took a toll on the dollar’s relative safe-haven status. That being said, the elevated yields of the US Treasuries should help limit deeper losses for the USD and provide some support for the USD / CAD pair, which warrants caution before placing further bearish bets.
In fact, the yield on the 10-year US government bond remained stable near the highest level since May amid prospects for an early tightening of policy by the Fed. Investors seem convinced that the Fed will it would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. Speculation was bolstered by comments from Fed Governor Christopher Waller, who said the US central bank may have to act faster if inflation remains too high.
Therefore, the key focus on Friday will be on a speech scheduled by Fed Chairman Jerome Powell, to be delivered later during the American session. Targeting key event risk, traders could take cues from the release of US PMI flash numbers for October and monthly Canadian retail sales data. Apart from this, the dynamics of the oil price and US bond yields could give some boost to the USD / CAD pair and allow traders to take advantage of some short-term opportunities.
Technical levels
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