- USD/CAD gains ground for the second day in a row and is supported by a combination of factors.
- Weakening crude oil prices are weighing on the CAD and offering support to the pair amid incessant dollar buying.
- Expectations for an aggressive Fed rate hike coupled with recession fears push the USD to a new 20-year high.
The pair USD/CAD has attracted fresh buying near the 1.2990 zone on Tuesday and has turned positive for the second day in a row. The pair continues its ascent during the first part of the European session and approaches the 1.3050 area again.
The New COVID-19 lockdowns in China coupled with growing recession fearsincreased concern about the outlook for fuel demand and weighed on oil prices raw. This, in turn, weighed on the commodity-linked CAD and pushed the USD/CAD higher amid sustained buying around the US dollar.
The FOMC minutes released last week reaffirmed the expectations for faster Fed policy tightening. In fact, those responsible for monetary policy emphasized the need to fight inflation, even if this translates into an economic slowdown. This was seen as a key factor that continued to boost the dollar.
The worsening of the global economic outlook caused a prolonged selling in equity markets, further benefiting the USD as a safe haven. This largely helped offset falling US Treasury yields and pushed the dollar to a new two-decade high on Tuesday.
Now it would be interesting to see if the USD/CAD pair is able to capitalize on the move or finds fresh selling at higher levels. Investors may refrain from opening aggressive bullish positions and would prefer to stay on the sidelines awaiting key events this week.
US CPI consumer inflation figures will be released on Wednesday, followed by the Bank of Canada’s monetary policy decision. Additionally, investors will take a cue from US retail sales data and preliminary consumer sentiment from Michigan due on Friday.
Meanwhile, broader market risk sentiment will continue to drive dollar demand amid the absence of market-relevant economic data. Aside from this, the dynamics in oil prices should give the USD/CAD pair some momentum and allow traders to take advantage of some short-term opportunities.
USD/CAD technical levels
Source: Fx Street
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