- A combination of support factors push USD/CAD to a multi-day high on Friday.
- Lower oil prices weigh on the loonie and offer support amid resurgent demand for dollars.
The pair USD/CAD it is supported by the overnight bounce from the 1.3650 area, or a two-week low, and gets strong follow-up traction on Friday. Intraday buying continues during the first half of the European session and lifts the pair to a four-day high around the 1.3840 area.
The further decline in oil prices undermines the commodity-linked loonie and turns out to be a key factor acting as a tailwind for the USD/CAD pair. Indeed, the black liquid remains within striking distance of the weekly low amid concerns that a deeper global economic downturn will hurt fuel demand.
Aside from this, a nice pickup in US dollar demand provides additional momentum to the USD/CAD pair and supports prospects for further gains. Philadelphia Fed President Patrick Harker’s overnight comments bet on a further rate hike in November and lift the dollar to a one-week high.
Harker warned that the US central bank is actively trying to rein in the economy to fight inflation and added fuel to the recent rally in US Treasury yields. US 10-year government bond rallies to its highest level since 2008, which, in turn, is seen as supportive for the dollar.
Investors also seem concerned that rapidly rising borrowing costs could end up triggering a recession in the world’s largest economy. In addition, the protracted war between Russia and Ukraine and China’s strict zero COVID policy weigh on global risk sentiment and further benefit the dollar’s relative safe-haven status.
There will be no major macro data releases in the US, leaving the dollar at the mercy of US bond yields and general risk sentiment.
Canadian retail sales rose 0.7% in August, beating the market consensus for a 0.2% reading. Excluding vehicles, the advance was also 0.7%, higher than the 0.4% expected. The data implies a rebound after falling 2.2% and 2.5% in July respectively.
Technical levels to watch
Source: Fx Street
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