- A combination of supporting factors helps USD / CAD gain strong traction on Wednesday.
- Nervousness over the coronavirus weighs on investor sentiment and fuels safe-haven monetary flows into the USD.
- A sharp drop in oil prices weighs on the CAD and supports the pair’s upward move before the BoC.
USD buying interest has accelerated during the European session on Wednesday and has propelled the USD / CAD pair close to the two-week high, around the 1.3250 level.
Following a brief consolidation earlier this Wednesday, the pair has captured some aggressive buying and has built on the late bounce of the previous day of around 40 pips from the 1.3142 region. The strong upward movement is due to a combination of factors, such as a resurgence in demand for the US dollar and falling oil prices.
Concerns that the continued rise in new coronavirus cases will trigger new lockdown measures and will hamper the already tepid recovery has taken its toll on global risk sentiment. This has been evident by a strong selling on the stock markets, forcing investors to move towards the US dollar safe haven.
Meanwhile, the second wave of COVID-19 infections has revived the fears of weaker fuel demand globally. This, along with the risk aversion cash flow, has caused a new downward movement in oil prices, weighing on the Canadian dollar, a currency linked to commodity prices, and has provided an additional boost to the USD / CAD pair.
Apart from this, chances that some short-term stop orders have been triggered above the round level of 1.3200 has further contributed to the bullish momentum in the USD / CAD pair. However, it remains to be seen whether the bulls can capitalize on the move or choose to withdraw some gains.
The key focus on Wednesday will be on the latest monetary policy update from the Bank of Canada (BoC), to be released at the start of the American session. The BoC is not expected to announce any major policy changes. Therefore, the economic forecast update and post-meeting press conference could help investors determine the next directional move for the USD / CAD pair.
Credits: Forex Street