- USD/CAD regains positive traction on Thursday and is back close to the yearly high.
- Expectations of an aggressive Fed rate hike continue to benefit the USD and offer some support to the pair.
- A further drop in oil prices weighs on the CAD and provides an additional boost to the pair.
The pair USD/CAD has extended its steady intraday move higher during the first half of the European session on jeuves and has risen to the area of ​​1.3045, approaching the yearly high again.
A combination of supportive factors helped the USD/CAD pair to take advantage of the previous day’s good rebound from the 1.2920 area and to gain some traction on Thursday. Expectations of more aggressive monetary policy tightening by the Federal Reserve pushed the DXY US dollar index to its highest level in nearly two decades.. Besides, the falling oil prices weighed on the CADcurrency linked to commodity prices, and acted as a tailwind for the pair.
Despite signs that inflationary pressures in the world’s largest economy are peaking, investors seem convinced that the Federal Reserve will continue its cycle of rate hikes. In fact, money market futures are valuing at 81% the possibility of a big rate hike of 75 basis points in June, amid concerns that China’s zero-covid policy and the war in Ukraine could push consumer prices even higher. This, coupled with risk-off sentiment, has further benefited the safe-haven USD.
The fear that rapid rise in inflation causing interest rates to rise sharply and crippling the global economy dampened investors’ appetite for riskier assets. Aside from growing recession fears, China’s strict COVID-19 lockdowns raised concerns about slowing fuel demand. In addition, the delay in the approval of the gradual embargo proposed by the European Union on Russian oil weighed on crude prices.
However, it remains to be seen whether the bulls can take advantage of the upside move or if the USD/CAD pair meets fresh selling at higher levels, warranting some concern before positioning for further gains. Market participants now await the US PPI Producer Price Index, which, along with US bond yields and broader risk sentiment, will weigh on the USD. Investors will also follow the dynamics of oil prices to take advantage of some short-term opportunities.
USD/CAD technical levels
Source: Fx Street
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