- A combination of factors helped the USD / CAD gain strong positive traction on Thursday.
- Falling oil prices undermined the Canadian dollar.
- USD bulls took in Powell’s dovish testimony and ignored falling US bond yields.
The pair USD / CAD It continued to climb higher during the early hours of the American session and shot to fresh daily highs, past 1.2550 in the last hour.
The pair built on the previous day’s post-BoC bounce from the 1.2425 region, or week-long lows, and gained some traction on Thursday. The momentum was sponsored by a combination of factors and has now lifted the USD / CAD pair well within impact distance of the highest level since it was touched on April 21 last week.
Crude prices added to heavy losses the day before and remained depressed for the second consecutive session amid the prospect of more supply from OPEC +. Saudi Arabia and the United Arab Emirates have reportedly reached a compromise that would allow for further relaxation of production restrictions starting next month.
In fact, WTI crude oil was down nearly 1.25% on the day, which, in turn, was seen as a key factor undermining demand for the commodity-linked Canadian dollar. Apart from this, the emergence of new buying around the US dollar, amid the prevailing environment of risk aversion, provided an additional boost to the USD / CAD pair.
Concerns about the potential economic consequences of the spread of the highly contagious Delta variant of the coronavirus weighed on global risk sentiment. This, to a greater extent, helped counter the dovish testimony from Fed Chairman Jerome Powell and extended some support to traditional safe-haven currencies, including the USD.
Meanwhile, the USD bulls did not appear to be affected by the ongoing decline in US Treasury yields and also ignored mixed US economic data. The US fell to 360,000 last week from 386,000 previously and the New York Fed’s Empire State Manufacturing Index improved sharply to 43 in June.
Separately, the Philadelphia Fed manufacturing index fell more than expected to 21.9 for the current month. Added to this, Industrial Production registered a modest growth of 0.4% compared to the expected increase of 0.7%. Next up will be the second day of Powell’s testimony, which could give the USD / CAD some boost.