- USD/CAD attracts some buying on Friday amid a modest uptick in USD demand.
- Prospects for further rate hikes from the Fed and rising US bond yields benefit the dollar.
- The recent rally in oil prices could prop up the loonie and limit further gains.
The pair USD/CAD bounces a few pips from the daily low and rises to a new intraday high during the first half of the European session. The pair is hovering around the 1.2770 area and is looking to rebound from two-month lows hit the day before.
The US dollar takes advantage of the overnight bounce from the lowest level since June and gains some positive traction on the last day of the week, which, in turn, offers some support to the USD/CAD pair. Recent comments from several Fed officials indicate that the US central bank will continue to tighten its monetary policy. The Fed’s expectations allow US Treasury yields to hold steady near a multi-week high and provide a modest boost to the dollar. However, a combination of factors could restrain the bulls from placing aggressive bets and keep the USD/CAD pair significantly higher.
Market participants remain divided on the size of the Federal Reserve’s next rate hike, amid signs of easing inflationary pressure in the United States. The US CPI report showed consumer prices flat in July, while the US Producer Price Index fell unexpectedly in July for the first time in two years. These data suggest that US inflation may have peaked, which, coupled with the boost in risk appetite, could act as a headwind for the safe-haven dollar. Other than that, this week’s rally in crude oil prices could underpin the commodity-linked loonie and help limit USD/CAD gains, at least for now.
Even from a technical point of view, the drop in the IPC after the US and the acceptance below the fundamental support of the 100-day SMA favors the bearish traders. This makes it prudent to wait for strong follow-on buying before confirming that the USD/CAD has bottomed and positioning for any further appreciation moves. On Friday in the United States, the Preliminary Michigan Consumer Sentiment Index will be published. Aside from this, US bond yields and broader risk sentiment will boost dollar demand. This coupled with the oil price dynamics should produce short-term opportunities around the USD/CAD pair.
Technical levels
Source: Fx Street
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