- A combination of factors causes some selling around USD/CAD on Monday.
- Bullish oil prices benefit the CAD and put pressure on the pair amid a weaker USD.
- Falling US bond yields and a positive risk tone seem to weigh on the dollar.
The USD/CAD start the new week with a bearish tone and erodes some of Friday’s strong gains to its highest level since May 2020. The pair maintains its selling tone throughout the European session and is currently trading around the 1.3755 area, just a few pips above the daily low.
the news that OPEC+ will study a production cut of 1.5 million bpd (or more), the largest since the COVID-19 pandemic, at its meeting on Wednesday push oil prices to new one-week highs. This, in turn, benefits the CADthe commodity-linked currency, is putting downward pressure on the USD/CAD pair amid a softer tone around US Treasury yields.
In fact, dollar index weakens near a one-week low touched on Friday and is under pressure from a combination of factors. US Treasury bond yields continue to slide from multi-year highs hit last week, which, coupled with a positive risk tone, weighs on the US dollar as a safe haven.
That said, the Federal Reserve’s commitment to control inflation and expectations of a more aggressive tightening of monetary policy they should act as a tailwind for the dollar. Markets have been pricing in the possibility of another 75 basis point Fed rate hike at the November meeting. This, in turn, favors USD bulls.
In addition, investors continue concerned about the possibility of a deeper economic recession affecting fuel demand. This could curb any significant rise in crude oil prices. Fundamental background suggests path of least resistance for USD/CAD is to the upside and supports the prospects for the appearance of new purchases at lower levels.
Market participants now look to the US economic docket, with the release of the ISM Manufacturing PMI due later in the American session. This, coupled with US bond yields and broader risk sentiment, will drive demand for the dollar. Traders will follow the oil price dynamics to take advantage of some short-term opportunities around the USD/CAD pair.
Technical levels to watch
Source: Fx Street
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