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USD / CAD retreats from multi-week highs, decline still supported around 1.2600

  • Some profit-taking in the USD limits the rise of the USD / CAD on Thursday.
  • The pullback in US bond yields weighs on the USD and limits the pair.
  • The optimistic expectations from the Fed should act as a tailwind for the USD and also provide support for the USD / CAD.

The pair USD / CAD moves within a narrow range early in Thursday’s European session, still supported above the round level of 1.2600.

The pair witnessed a modest pullback from the six-week highs touched early this Thursday and was weighed down by some profit-taking around the US dollar. Given the recent move to a 16-month high in the US Dollar DXY index, the decline in US Treasury yields turned out to be a key factor leading to some profit-taking around the USD.

Having said that, prospects for an early tightening of monetary policy by the Fed should continue to act as a tailwind for the USD. In fact, markets have been pricing in the possibility of an eventual Fed rate hike for July 2022 and Fed fund futures indicate a high probability of another hike for November.

This, coupled with cautious market sentiment, it could help the safe-haven USD attract some lower buying. Apart from this, a further drop in crude prices could weigh on the CAD, a currency linked to commodity prices, and limit any significant decline for the USD / CAD pair, which would warrant caution for bears.

The crescent Pressure on US President Joe Biden to release supplies from the Strategic Petroleum Reserve continued to weigh on crude prices. Furthermore, a statement from China’s state reserves office, saying it was working on a crude oil reserve release, dragged the price of WTI crude to a six-week low.

Fundamental backdrop looks firmly tilted in favor of bulls and any subsequent decline could still be seen as a buying opportunity. Market participants are now looking forward to the US economic calendar, with the releases of the Philadelphia Fed Manufacturing Index and initial weekly jobless claims.

This, along with US bond yields and a timed speech by New York Fed Chairman John Williams, will sway the dollar and provide some boost to the USD / CAD pair. Investors will take even more cues from broader market risk sentiment and oil price dynamics to seize some short-term opportunities on par.

USD / CAD technical levels

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