USD/CAD maintains weekly gains, closely watching the 1.2800 level

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  • US dollar holds firm across the board, hangs on to weekly gains.
  • USD/CAD is headed for the highest daily close in a month.

The USD / CAD rose earlier on Friday to 1.2796, the highest intraday level since January 6. It then pulled back to the 20-hour SMA at 1.2745, and is moving back towards the recent high. The key driver continues with the dollar rally.

The dollar remains supported by risk aversion and Fed tightening expectations. Higher crude oil prices supported the Canadian dollar only modestly.

From its level a week ago, USD/CAD is up more than 200 pips, posting the best performance since August of last year.

After central banks, employment data

Despite falling against the US dollar, the Canadian dollar is about to post the highest weekly close in over a year against the AUD and NZD in a risk-off environment. The Bank of Canada did not raise rates this week but offered signs that a tightening cycle will begin in March.

The focus on financial markets is likely to continue around Wall Street and the US dollar. In terms of data, the key report in the US will be the Non-Farm Payroll report. After Wednesday’s FOMC meeting, prices are still adjusting to changes in monetary policy expectations.

“Next week, the focus will be on Canada’s January employment data, an opportunity to gauge the impact of Omicron’s restrictions on the country. Signs of resilience and further pressure on wage growth could fuel speculation around a 50bp rise in March and support the CAD. We expect USD/CAD to stabilize around current levels with further USD strength which should be channeled primarily through weaker low yields,” ING analysts explained.

Technical levels

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