- USD/CAD gained some positive traction on Monday, although it struggled to capitalize on the move.
- The risk-on momentum dented the demand for the safe haven USD and capped the pair’s uptrend.
- Weaker oil prices undermined the loonie and extended support amid expectations of the Fed’s hawkish line.
The pair USD/CAD traded between tepid gains/minor losses during the first half of the European session and was last seen trading in neutral territory around 1.2750.
The pair attracted some buying during the early part of the session on Monday, although the rally lacked bullish conviction and ran out of steam before the 1.2800 level. A generally positive tone around equity markets did not help the safe-haven US dollar preserve its early gains, but instead sparked some intraday selling at higher levels. This, in turn, was seen as a key factor that acted as a headwind for the USD/CAD pair.
Investors turned bullish after Russia and Ukraine gave their most optimistic assessments after the weekend’s negotiations. In fact, the Ukrainian negotiator Mykhailo Podolyak said that Russia is starting to talk constructively and we will achieve some results in a matter of days. Furthermore, a Russian delegate to the talks, Leonid Slutsky, noted that significant progress had been made and that delegations could soon reach preliminary agreements.
The incoming headlines boosted investor confidence and dented demand for traditional safe-haven assets, including the dollar. The negative factors, to a greater extent, were offset by a further downward leg in crude oil prices, which undermined the commodity-linked Canadian dollar. Apart from this, rising US Treasury yields should cap any significant decline in the USD and provide some support for the USD/CAD pair, warranting some caution for bearish traders.
The recent monster gains in commodity prices following the Russian invasion of Ukraine have been fueling concerns about a huge inflationary shock. This, in turn, reinforced market bets on an imminent start of Fed policy tightening and continued to push US bond yields higher. Therefore, the market’s focus will remain glued to the outcome of a two-day FOMC policy meeting, which will play a key role in determining the dollar’s short-term path.
Meanwhile, further developments around the Russia-Ukraine saga will influence broader market risk sentiment, which, along with US bond yields, will drive USD demand. Aside from this, traders will take note of the oil price dynamics for some short-term opportunities around the USD/CAD pair amid the absence of any relevant market-moving economic releases.
Technical levels
Source: Fx Street
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