- USD / CAD saw some selling on Wednesday and fell back closer to the weekly low.
- The rebound in oil prices sustained the Canadian dollar and put pressure amid subdued demand for the US dollar.
- The Fed’s mounting bets on a rate hike acted as a tailwind for the USD and helped limit losses for the pair.
The pair USD / CAD it remained on the defensive during the early days of the European session, although it has managed to recover a few pips from the daily low, around the 1.2725 area. The pair was stable around 1.2750 and had a rather dovish reaction to the US ADP report.
Crude oil prices rose nearly 4% on Wednesday, recovering much of the previous day’s drop to the lowest level since Aug. 23. This, in turn, boosted demand for the commodity-linked Canadian dollar and triggered new selling around the USD / CAD amid dovish US dollar price action.
A sharp change in global risk sentiment turned out to be a key factor acting as a headwind for the safe-haven dollar, further contributing to the selling bias surrounding the USD / CAD pair. Investors now seem convinced that the latest variant of COVID-19 would not derail the economic recovery.
The World Health Organization (WHO) official said some early indications are that most Omicron cases are mild to further support market optimism. That being said, the increased stakes for a more aggressive tightening of policy by the Fed helped limit any significant decline in the USD.
Indeed, money markets indicate the possibility of a rate hike of at least 50 bps by the end of 2022. This was reinforced by a strong rally in US Treasury yields, which extended further some USD support and helped USD / CAD capture some buying ahead of the weekly low.
On the economic data front, the Automatic Data Processing Research Institute (ADP) reported that US private sector employers added 534,000 jobs in November. This marked a modest slowdown from the prior month’s revised downward reading of 570,000, although it was better than the 525,000 anticipated.
The data did not provide any impetus, as the focus remains on the joint testimony of Fed Chairman Jerome Powell and US Treasury Secretary Janet Yellen before the House Financial Services Committee. Apart from this, the US ISM Manufacturing PMI could influence the dollar and the USD / CAD pair.
Technical levels
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