USD / CAD jumps to nearly a month highs above the 1.2800 level

• A combination of factors is pushing USD / CAD higher for the third day in a row.
• Weaker oil prices weigh on the CAD and support the pair’s upward move.
• The Fed’s optimistic expectations and risk aversion benefit the safe-haven USD.

The pair USD / CAD spreads its strong intraday gains and rises to one-month highs above the 1.2800 level at the start of the European session on Monday.

A combination of factors has helped the USD / CAD pair to take advantage of last week’s positive move from the round 1.2600 level and continue to climb higher for the third day in a row. A weaker tone around crude prices has weighed on the CAD, a currency pegged to commodity prices, ahead of Monday’s Canadian federal elections. This, along with a broad strength of the US dollar, has provided an additional boost to the pair.

Despite signs of easing inflationary pressures in the United States, incoming macroeconomic data point to continued economic recovery. Optimism has been fueling the speculation that the Fed would begin reversing its massive pandemic-era stimulus sooner rather than later. This has been evident by the recent surge in US Treasury yields, which has continued to act as a tailwind for the USD.

Apart of this, risk aversion in the markets, as a sale in the stock markets shows, has further benefited the safe-haven US dollar. Investors remain concerned about the rapid spread of the Delta variant and a global economic slowdown. This, together with the re-escalation of tensions between China and Western countries, such as the United States, the United Kingdom and Australia, has taken its toll on risk sentiment.

With the latest rally, the USD / CAD has reaffirmed Friday’s bullish break above the 1.2700 level and appears to be about to rally further. Investors, however, could become wary of the key uncertainty and risk from this week’s FOMC meeting. The Fed is scheduled to announce its decision on Wednesday, which will influence dollar price dynamics and provide new directional momentum.

Also, the RSI on the 1 hour chart is already showing slight overbought conditions. This makes it prudent to wait for some consolidation or modest pullback before positioning for any further bullish movement. However, the bias still appears to be tilted in favor of the bulls amid the absence of relevant economic releases on Monday from either the United States or Canada.

USD / CAD technical levels