- USD/CAD pulls back from the 1.3400 zone, the two-year high reached this Wednesday.
- The strong intraday recovery in crude oil prices benefits the CAD and acts as a headwind for the pair.
- The pullback in US bond yields is preventing dollar bulls from opening new positions and capping gains.
- Traders appear to be on the sidelines now, awaiting the FOMC policy decision.
The pair USD/CAD has reached a two-year high on Wednesday, though it struggles to capitalize on the move and pulls back a few pips from the 1.3400 area. However, the pair manages to maintain its modest intraday gains and trades around the 1.3375-1.3380 area during the early part of the European session.
The US dollar gains strong traction for the second day in a row and remains supported by Fed expectations. This, in turn, is seen as a key factor acting as a tailwind for the USD/CAD pair. The US central bank is expected to make another rate hike of 75 basis points at the end of a two-day monetary policy meeting on Wednesday. Markets have also priced in a slim chance of a full 100 basis point hike, which, coupled with the prevailing cautious mood, continues to support the dollar as a safe haven.
Market sentiment remains fragile amid the concern about a deeper global economic recession. That said, a modest pullback in US Treasury yields is preventing USD bulls from opening aggressive positions. Apart of this, A sharp intraday rally in crude oil prices underpins the commodity-linked CAD and helps cap USD/CAD gains. Investors also seem reluctant, preferring to stay on the sidelines ahead of the FOMC’s expected monetary policy decision later in the American session.
Investors will continue to refer to updated economic projections and the so-called dot plot. Additionally, Fed Chairman Jerome Powell’s remarks at the post-meeting press conference will be scrutinized for clues on the future path of rate hikes. This will play a key role in driving demand for the dollar in the short term. Aside from this, oil price dynamics should help determine the next directional move for the USD/CAD pair.
USD/CAD technical levels
Source: Fx Street
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