USD/CAD holds steady near 1.2600 ahead of Canadian jobs data

  • USD/CAD consolidates this week’s strong recovery move from yearly low.
  • A rebound in oil prices offers some support to the CAD and caps the pair’s upside.
  • Strong bullish sentiment around the USD caps losses ahead of the Canadian jobs data release.

The pair USD/CAD extended its sideways consolidation move and remained trapped in a tight range, just below the 1.2600 levelduring the first half of the European session on Friday.

The pair struggled to capitalize on its strong rebound from the 1.2400 level, or the yearly low touched on Tuesday, and oscillated in a range below the very important 200-day SMA on the last day of the week. Crude prices recovered a bit from the three-week low hit the previous day and offered some support to the CAD, currency linked to the prices of raw materials. This, in turn, acted as a headwind for the USD/CAD pair, although the prevailing bullish sentiment around the US dollar helped limit the pair’s decline.

The DXY dollar index rose to its highest level since May 2020 and continued to be supported by expectations that the Fed would tighten monetary policy at a faster pace. In fact, the FOMC minutes for March 15-16 released on Wednesday showed that the authorities were willing to raise interest rates by 50 basis points at upcoming meetings. Also, there was a general agreement on reducing the Fed’s massive nearly $9 trillion balance sheet at a maximum rate of 95,000 million dollars per month to tighten financial conditions.

In addition to the Fed’s outlook, Inflation fears continue to support elevated US Treasury yields, which further underpinned the USD. Investors seem concerned that the recent surge in commodity prices following the Russian invasion of Ukraine would put upward pressure on already high consumer inflation. Having said that, a good recovery in global equity markets prevented investors from opening new bullish positions around the safe-haven US dollarcapping gains for the USD/CAD pair.

Market participants also preferred to wait on the sidelines ahead of Canadian monthly employment details due to be released early in the American session today. In the absence of any major economic releases from the US, US bond yields will play a key role in influencing the USD. This, coupled with the dynamics in oil prices and the developments surrounding the Russian-Ukrainian war, should give the USD/CAD pair some momentum and allow investors to take advantage of some short-term opportunities.

USD/CAD technical levels

Source: Fx Street

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