- USD/CAD has seen an intraday reversal from the one-week highs reached on Thursday.
- Oil price rebound underpins loonie and puts pressure amid modest dollar pullback.
- Upbeat US macro data and aggressive Fed expectations should cap and support the dollar.
The pair USD/CAD it retraces from a week and a half high reached this Thursday and falls to a new daily low during the beginning of the American session. The pair is currently trading below 1.2900 and is under pressure from a combination of factors.
Oil prices gain some positive traction and pull back from more than six-month lows set on Tuesday, underpinning the commodity-linked loonie and acting as a USD/CAD headwind. This, coupled with a modest US dollar retracement from a new monthly high, attracts some selling at higher levels and further contributes to the intraday decline.
The Energy Information Administration (EIA) report, which showed a larger-than-expected draw in US crude stocks, helped offset concerns that the global economic slowdown would hit fuel demand. Furthermore, expectations that the European Union’s embargoes on Russian oil imports could reduce supply offer support for the black liquid.
The dollar, meanwhile, has failed to capitalize on its modest intraday rally amid a decline in US Treasury yields. Aside from this, a good intraday rally in equity markets triggers some profit taking around the dollar, which is a safe haven. However, the US macroeconomic releases help to limit the fall of the dollar and the USD/CAD pair.
Indeed, the Philadelphia Fed manufacturing index came in at 6.2 in August, versus consensus estimates of an improvement to -5 from -12.3 in the previous month. Meanwhile, US initial jobless claims unexpectedly fell to 250,000 during the week ended August 12, from the previous week’s downwardly revised reading of 252,000 (262,000 previously reported).
This comes a day after the FOMC minutes indicated that policymakers would not consider withdrawing interest rate hikes until inflation subsided substantially and reaffirmed the Fed’s hawkish expectations. Market participants seem to be convinced that the Fed will maintain its tightening policy, which supports the prospects of some dollar purchases.
The fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside, suggesting that any further slide could still be viewed as a buying opportunity. Therefore, it would be wise to wait for a strong follow-up sell-off before confirming a short-term top and positioning for any significant declines.
Technical levels
Source: Fx Street
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