- USD/CAD attracted some buying on Wednesday and soared to a new multi-week high.
- The Fed’s aggressive rate hike bets pushed the USD to a two-year high and acted as support.
- A rebound in oil prices did little to benefit the loonie or dampen positive intraday movement.
The pair USD/CAD rose around 80 pips from the daily low and reached the 1.2845-1.2850 zone, or a new six-week high during the first half of the European session.
After an initial drop to the 1.2780-1.2775 zone, the USD/CAD pair regained traction on Wednesday and turned positive for the fifth day in a row amid prevailing buying interest in the US dollar. Increasing bets for more aggressive policy tightening by the Federal Reserve continued to act as a tailwind for the dollar, further supported by the deteriorating global economic outlook.
Investors now expect the Fed to raise interest rates by 50 bps at each of its next four meetings in May, June, July and September. Expectations were bolstered by recent aggressive comments from influential members of the FOMC, including Fed Chairman Jerome Powell. The protracted conflict between Russia and Ukraine and the latest outbreak of COVID-19 in China have raised fears that global growth will stall.
The support factor, to a greater extent, helped offset a rally in crude oil prices, which tends to benefit the commodity-linked Canadian dollar. Poland and Bulgaria said Russia will stop supplying gas on Wednesday. This, in turn, fueled concerns that Russia might make good on its threat to stop gas flows to countries that refuse to pay for fuel in rubles and cut off supplies to Europe. This, coupled with hopes of further Chinese economic stimulus, underpinned crude prices.
However, the appearance of buying and acceptance above the 1.2800 mark favors the bullish traders. Therefore, some continuation strength towards the test of yearly highs around the 1.2900 round level remains a distinct possibility. Market participants now expect second tier US economic data which, along with broader market risk sentiment, will weigh on the USD. Traders will also take note of the oil price dynamics to take advantage of short-term opportunities around the USD/CAD pair.
Technical levels
Source: Fx Street
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