- A combination of factors triggered new selling around USD / CAD on the last day of the week.
- A generally positive risk tone affected the dollar as a safe haven and provided support to the downside.
- A rally in crude oil, stronger Canadian data supported the loonie and contributed to sales.
The pair USD / CAD it updated daily lows in reaction to better-than-expected Canadian macro data, although it quickly rallied a few pips thereafter. The pair was last seen trading around the 1.2335 region, shedding almost 0.25% on the day.
The pair encountered fresh supply on Friday and eroded a significant portion of the previous day’s recovery gains from levels below 1.2300 or four-month lows. The drop was sponsored by a renewed selling bias in the US dollar and a rebound in crude oil prices, which tend to prop up the commodity-linked Canadian dollar.
Alleviating concerns about a credit crisis in China’s real estate sector boosted investor sentiment on the last day of the week. This was evidenced by a generally positive tone in equity markets, which, in turn, was seen as a key factor denting the dollar’s relative safe-haven status.
On the other hand, the Canadian dollar benefited from a further rise in crude prices and slightly better than expected domestic data. Statistics Canada reported that retail sales increased 2.1% month-on-month in August compared to the 0.6% decline reported in the prior month and the forecast growth of 2%.
That said, soaring US Treasury yields, amid the Fed’s expectations of an early tightening, should help limit the USD’s deeper losses and act as a tailwind for the pair. USD / CAD. Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation.
Therefore, the focus of the market would be in the statements of the president of the Fed, Jerome Powell, during a press conference that will take place today Friday.