- A combination of factors causes some selling around USD/CAD on Wednesday.
- Oil price rebound underpins loonie and puts pressure amid weaker dollar.
- The downside looks limited as traders look to the FOMC minutes for further momentum.
The pair USD/CAD It attracts some selling near the 1.3830 area on Wednesday and pulls back further from its highest level since May 2020 hit the day before. The pair remains depressed during the first half of the European session and is currently flirting with the daily low around the 1.3770 area.
Crude oil prices recover the positive traction and part of the losses registered in the last two sessions, which, in turn, supports the loonie linked to raw materials. Apart from this, a generally positive risk tone is acting as a headwind for the safe haven dollar and putting downward pressure on the USD/CAD pair. That said, a combination of factors should help limit the decline and warrants caution for aggressive bear traders.
Investors remain concerned that a deeper global economic downturn and rising COVID-19 cases in China will hurt global fuel demand. This largely overshadows OPEC+’s decision to cut output by some 2 million bpd – the biggest cut since the 2020 COVID pandemic – and limit black liquid gains. Aside from this, growing bets on more aggressive Fed rate hikes favor dollar bulls and should support the USD/CAD pair.
Investors appear convinced that the US central bank will tighten monetary policy at a faster pace to control inflation and have been pricing in another 75 basis point rate hike in November. Therefore, the focus is on the FOMC minutes to be released this Wednesday, which will be followed by US consumer inflation data on Thursday. Clues will be sought on the trajectory of the Fed rate hike, which will influence the price dynamics of the dollar in the short term.
Nonetheless, the bias seems to remain in favor of the bulls and supports the prospects for some dip buying around the USD/CAD pair. Technically, repeated failures ahead of the 1.3800 area make it prudent to wait for strong follow-on buying before positioning for any further near-term appreciation moves.
Technical levels to watch
Source: Fx Street
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