- USD / CAD extends its sideways consolidation move for the third day in a row.
- The current retracement drop in the USD acts as a headwind and limits the pair’s gains.
- Risk aversion helps limit USD losses and offers some support for the pair.
The pair USD / CAD lacks a strong directional bias and oscillates between timid gains and minor losses, around the region of 1.2450, at the start of the European session on Tuesday.
A combination of divergent factors did not provide any significant boost to the USD / CAD pair and led to a subdued and limited price in a range for the third day in a row on Tuesday. The US dollar extended its retracement decline from post-NFP highs and acted like a headwind for the pair. Nevertheless, the decline continues to be supported amid a softer tone around oil prices, which tend to weigh on demand for the CAD, a currency linked to commodity prices.
The USD was pressured by pessimistic outlook from the Fed and a further drop in yields of US Treasury bonds. It is worth remembering that the US central bank adhered to its transitory inflation narrative and indicated that the authorities were in no rush to raise interest rates. That said, speculations that the Fed would be forced to adopt a more aggressive response to contain stubbornly high inflation should help limit losses around the USD.
Apart of this, risk aversion extended some support to safe haven USD. This, in turn, prevented investors from opening aggressive bearish positions around the USD / CAD pair, which has so far managed to defend the support of the 100 hourly SMA. This makes it prudent to wait for a strong continuation sell before positioning for an extension of last week’s rejection drop from the very important resistance at the 200-day SMA.
Market participants are now awaiting the US economic calendar, with the release of the IPP producer price index at the start of today’s US session. This, along with Fed Chairman Jerome Powell’s remarks at an online conference, US bond yields and broader market risk sentiment, will influence the USD. Investors will take more indications of oil price dynamics to seize some short-term opportunities around the USD / CAD pair.
Technical levels to observe
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