- USD/CAD struggles to capitalize on modest intraday gains to break above one-month highs.
- A rally in crude oil prices underpins the loonie and acts as a headwind for spot prices.
- The aggressive expectations of the Fed and the risk aversion environment boost the dollar and limit the falls.
The pair USD/CAD it retraces from the one-month highs reached this Monday and falls to the 1.2980-1.2975 zone, closer to the daily low of the first half of the European session.
A modest rebound in crude oil prices underpins the commodity-linked loonie, which, in turn, is seen as a key factor acting as a USD/CAD headwind. Concerns that European Union embargoes on Russian oil imports could restrict supply offer support for the black liquid. However, efforts to revive the Iran nuclear deal and concerns about a global economic slowdown could limit the commodity’s significant gains. Aside from this, sustained US dollar buying should help limit the decline in principal, at least for now.
Strong expectations that the Federal Reserve will maintain its aggressive tightening policy continue to support the dollar’s current rally to its highest level since mid-July. Aside from this, the prevailing risk environment prompted some safe-haven flows into the dollar. Rising recession fears continue to weigh on investor sentiment, reflected in the generally weaker tone of equity markets and fueling demand for haven assets. This, in turn, supports the prospect of some buying in the USD/CAD pair.
Furthermore, traders may want to wait for Fed Chairman Jerome Powell’s speech at the Jackson Hole symposium on Friday. Apart from this, this week traders will take as a reference important macroeconomic data from the United States. This, in turn, should weigh on dollar demand and provide a further directional boost to the USD/CAD pair. Meanwhile, the absence of any relevant economic releases on Monday from both the US and Canada should deter investors from making aggressive bets.
Technical levels
Source: Fx Street
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