- USD/CAD gains traction for the third day in a row and rises to a new yearly high on Monday.
- Falling oil prices weigh on the CAD and offer support amid sustained buying around the USD.
- Expectations for an aggressive Fed interest rate hike and risk-off sentiment benefit the safe-haven USD.
The pair USD/CAD maintains its upward movement during the first half of the European session and trades around the 1.2935 area, just a few pips below the yearly high at 1.2950 set earlier in the day.
A combination of factors helped the USD/CAD pair consolidate its recent strong upward trajectory seen over the last month already gain traction for the third day in a row on Monday. US dollar held near two-decade highs amid prospects for more aggressive Fed monetary policy tightening. In addition, falling oil prices weakened the commodity-linked CAD and acted as a tailwind for the US currency.
The chairman of the Fed, Jerome Powell said last week that a 75 basis point rate hike is not being actively considered. However, the markets seem to be convinced that the US central bank would have to take a more drastic measure to curb rising inflation and they continue to assess rate hikes of 200 basis points for the rest of 2022. This, in turn, pushed the yield on the benchmark 10-year US government bond to its highest level in more than a decade and benefited the dollar.
Expectations of rapid rate hikes in the US, coupled with strict COVID-19 lockdowns in China, have fueled concerns about global economic growth and a potential recession. This, in turn, dampened investors’ appetite for riskier assets and also acted as a headwind for oil, despite concerns about tight supply. Also, Friday’s Canadian employment report, which was not very impressive, weighed on the national currency and extended support for the USD/CAD pair.
No economic data of importance to the market will be published on Monday, neither in the United States nor in Canada. Therefore, US bond yields and broader market risk sentiment will continue to play a key role in driving USD demand. Investors will follow the oil price dynamics to take advantage of some short-term opportunities around the USD/CAD pair.
USD/CAD technical levels
Source: Fx Street
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