USD/CAD rises above 1.2700

• USD/CAD rose roughly 140 pips on Friday to hit its highest level in over a month above 1.2700.
• That marks the biggest one-day percentage gain since November.
• The pair rallied on the back of risk aversion flows, with the BoC’s recent aggressive stance and strong data not supporting the CAD.

The USD/CAD rose roughly 140 pips on Friday to hit its highest level in over a month above the 1.2700 mark and, at current levels around 1.2720, is trading with daily gains of around 1.1%. The pair’s rally comes despite what would normally be a (minor) bearish combination of better-than-expected Canadian data (retail sales) and worse-than-expected US data (flash PMI).

The pair’s jump, the biggest since November 2021, which also saw it break cleanly north of its 50- and 200-day moving averages below 1.2650, also comes despite aggressive comments from BoC Governor Tiff Macklem, earlier in the week, who signaled the likelihood of more 50bp rate moves in the coming weeks.

The rise in USD/CAD on Friday can largely be explained by a risk-off trend in the markets on Friday, with major US stock markets falling more than 2.0% each to hit new monthly lows and traders citing fears over the global central bank’s policy tightening. In fact, it is not only the BoC that has issued an aggressive message in recent days. Fed Chairman Jerome Powell has indeed given the go-ahead for 50bp rate hikes at upcoming meetings and even ECB policy makers are talking about rate hikes starting in July.

Looking ahead to the week ahead, traders will likely expect some stabilization in risk appetite on Monday and if crude oil prices remain supported, that could set the stage for a USD/CAD pullback towards this week’s levels. week. BoC’s Macklem will also be back on the wires on Monday, and his comments are likely to come under close scrutiny again.

Technical levels