- USD/CAD gains strength on Wednesday and is supported by a combination of factors.
- A new wave of risk aversion in world trade and expectations of a hawkish Fed underpin the dollar.
- The fall in oil prices weighs on the Loonie and continues to support the strong move higher.
The pair USD/CAD it attracts new buying near the 1.3660 zone on Wednesday and breaks a three-day losing streak to the one-week low reached the day before. The pair maintains its offered tone during the early American session and currently stands around the 1.3755-1.3760 area, just a few points below the daily high touched in the last hour.
A combination of support factors provides a strong boost to the US dollar which, in turn, is seen as a key factor acting as a tailwind for the USD/CAD pair. The US CPI report on Tuesday indicated that inflation is not coming down as fast as expected and revived bets for at least a 25 basis point rate hike by the Federal Reserve at its policy meeting on Tuesday. March 21-22. On top of this, a new wave of global risk aversion, led by negative news about Swiss bank Credit Suisse, further benefits the dollar’s relative safe-haven status.
In fact, the main shareholder of the struggling Swiss bank has declared that it cannot inject more money, as a larger stake would bring more regulatory hurdles, fueling speculation that the bank would eventually fail. This, in turn, triggered a sell-off in global equity markets, which, to a large extent, helps offset the mostly disappointing US macroeconomic data and continues to support the dollar. The US Producer Price Index (PPI) unexpectedly dipped 0.1% in February and the annual rate slowed more than expected, to 4.6% from 5.7% in January.
In addition, the core PPI, which excludes food and energy prices, was flat during the reported month, falling to a year-on-year rate of 4.4% from 5.4% in the previous month. On the other hand, US Retail Sales fell 0.4% in February, compared with a strong 3.2% increase recorded the previous month and a 0.3% decline expected. Additionally, the New York Fed’s Empire State Manufacturing Index slumped to -24.6 for the current month, beating estimates for a drop to -8 from -5.8 previously, though it did not dent intraday bullish sentiment in around the USD.
Apart from this, a sharp drop in Crude Oil prices, to the lowest level since December 2021, is seen weighing heavily on the commodity-linked Loonie and extends additional support to the USD/CAD pair. This, coupled with the fact that the Bank of Canada (BoC) became the first major central bank to pause its rate hike cycle last week, suggests that the path of least resistance for spot prices is up. . Therefore, a further strengthening towards 1.3800, on the way to a multi-month high around 1.3860 hit earlier this March, looks like a distinct possibility.
Technical levels to watch
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
