- USD/CAD comes under fresh selling pressure on Tuesday amid ongoing dollar profit-taking.
- The sharp drop in oil prices undermines the loonie and helps limit deeper losses for the pair.
- Investors turn their attention to the US ISM Services PMI for some momentum ahead of Wednesday’s BoC meeting.
The pair USD/CAD it meets new offers on Tuesday and maintains its offered tone during the first half of the European session. However, the pair recovers a few pips from the daily low and is currently trading comfortably above the 1.3100 round level.
The recovery in global risk sentiment, reflected in a generally positive tone in equity markets, pushes the safe-haven US dollar off two-decade highs hit on Monday. This turns out to be a key factor putting some downward pressure on the USD/CAD pair. That said, the sharp decline in crude oil prices undermines the commodity-linked loonie and offers some support for the pair.
Oil prices are under renewed selling pressure and are once again approaching multi-month lows hit last week. OPEC+’s agreement to cut production by 100,000 barrels a day in October was seen as a symbolic move. This, coupled with concerns that the global economic slowdown and COVID-19 cutbacks in China will dent fuel demand, overshadow concerns about tight global supply and weigh heavily on the black liquid.
Furthermore, rising US Treasury yields, bolstered by Fed expectations, support the prospect of some currency buying and should limit USD/CAD losses. Investors seem convinced that the Federal Reserve will maintain its aggressive tightening policy to control inflation and have been pricing in a higher probability of a 75 basis point hike at the September FOMC policy meeting.
The fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside, and any significant decline could still be viewed as a buying opportunity. However, traders may prefer to stay on the sidelines ahead of Wednesday’s Bank of Canada meeting. Meanwhile, the US ISM Services PMI could give some momentum later in the early American session.
Technical levels
Source: Fx Street
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