- A combination of factors caused aggressive intraday selling around USD/CAD on Monday.
- The rally in crude oil prices underpinned the loonie and put pressure on amid a weaker dollar.
- Recession fears could dampen oil prices and limit dollar losses ahead of the key FOMC decision.
The pair USD/CAD has seen an intraday turnaround from multi-day highs reached earlier this Monday and has retraced nearly 100 pips from around 1.2900. The pair maintained its bid tone heading into the American session and was last seen flirting with the 50-day SMA around the 1.2855-1.2850 area.
A nice recovery in global risk sentiment – as evidenced by a strong intraday rally in equity markets – weighed on the safe-haven US dollar. In fact, the dollar index languished near its lowest level since July 5 hit on Friday, which in turn was seen as another factor working against the USD/CAD pair on Monday.
A weaker dollar, coupled with a positive tone, helped oil prices rebound more than 4% from a one-week low hit on Monday. This, in turn, underpinned the commodity-linked loonie and put additional downward pressure on the USD/CAD pair. That said, a combination of factors could help limit the pair’s losses.
Investors remain concerned that more aggressive tightening by major central banks could limit economic activity and pose challenges to global growth. This, coupled with the imposition of strict COVID-19 controls in China, has raised concerns about the outlook for fuel demand and should limit the black liquid’s gains.
Traders may also refrain from making aggressive directional bets and prefer to wait on the sidelines ahead of the crucial FOMC monetary policy decision to be announced on Wednesday. The Fed is expected to raise interest rates by 75 basis points, so the focus will be on new clues about the future path of policy tightening.
Market participants will also be closely monitoring important US macroeconomic data this week. A fairly busy week begins with the release of the Conference Board’s US Consumer Confidence Index on Tuesday. This data, along with Thursday’s US Q2 GDP preview, will weigh on the dollar and help determine the short-term path of the USD/JPY pair.
Technical levels
Source: Fx Street
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