- A combination of factors causes some intraday selling around USD/CAD on Monday.
- Rising oil prices underpin the loonie and put pressure on amid a sharp dollar pullback.
- Aggressive Fed rate hike bets should limit USD losses and support the pair.
The pair USD/CAD cuts its initial gains to the 1.3075 area, ie the highest level since mid-July, and refreshes the daily low during the early American session. The intraday decline is fueled by a combination of factors and drags spot prices down to the 1.3015 area in the last hour.
Expectations that major oil producers could cut production to stem the recent drop in oil prices provide a modest boost to the black liquid. This, in turn, underpins the commodity-linked loonie and acts as a headwind for the USD/CAD pair. Aside from this, the US dollar’s dramatic turnaround from a new 20-year high attracts some selling around the pair and contributes to the intraday drop.
The dollar pullback, meanwhile, lacks an obvious fundamental catalyst and could be attributed solely to profit-taking. That said, increased bets on a 75 basis point Fed rate hike at the September meeting, coupled with the prevailing risk-off environment, should help limit dollar losses. This, in turn, warrants some caution before placing further bearish bets on the USD/CAD pair.
Market bets on more aggressive Fed policy tightening were bolstered by hawkish comments from Fed Chairman Jerome Powell on Friday. During his speech at the Jackson Hole Symposium, Powell noted that interest rates would be kept higher longer to reduce inflation. A further rise in US Treasury yields reinforces market expectations and favors dollar bulls.
In the absence of any major economic releases in the market from both the US and Canada, the fundamental backdrop supports the prospect of some buying in the USD/CAD pair. This makes it prudent to wait for a strong sell-off before confirming that last week’s good rebound from levels below 1.2900 has run out.
Technical levels
Source: Fx Street
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