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USD / CAD rallies towards 1.2400 amid falling oil prices and USD strength

  • A combination of factors helped the USD / CAD gain some positive traction on Friday.
  • A softer risk tone and rising US bond yields rekindled demand for the dollar as a safe haven.
  • A weaker Canadian GDP figure, a further drop in oil prices undermined the Canadian dollar.
  • Markets had a fairly subdued reaction to the mixed data from the US PCE price index.

The pair USD / CAD it shot to fresh daily highs during the early days of the American session, with the bulls making a fresh attempt to conquer the round 1.2400 level.

A strong rally in US Treasury yields allowed the US dollar to make a solid rebound from a month-long lows hit in reaction to lousy US GDP figures on Thursday. This, in turn, was seen as a key factor that helped the USD / CAD pair attract some buying on the last day of the week and rise almost 70 pips from the daily lows, around the 1.2330-25 region.

The positive intraday movement accelerated in the last hour after the publication of the monthly Canadian GDP report, which showed that the economy expanded 0.4% in August. This marked a notable recovery from a modest decline in August, but disappointed market expectations of 0.7% growth and turned out to be a key factor weighing on the Canadian dollar.

From the US, the Fed’s preferred indicator of inflation, the core PCE price index, held steady near 30-year highs in September and stood at 3.6% yoy, slightly below the 3.7% forecast. . Additional details showed that personal income decreased significantly, by 1.0% month-on-month, while personal expenses increased 0.6% month-on-month. However, the data indicated that consumer cost pressures are taking hold.

This, in turn, validated market expectations that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. This was evident from the high yields on US Treasuries. In fact, the benchmark 10-year US government bond yield rose again to 1.61%, which, coupled with a more risky tone. soft, continued to benefit the safe haven dollar.

Apart from this, a further downward leg in crude oil prices undermined the commodity-linked Canadian dollar, which was seen as another factor that provided a good boost to the USD / CAD pair. Now it will be interesting to see if the pair is able to capitalize on the move and confirm a short-term bullish breakout through a downward sloping channel extending from the September highs.

Technical levels

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