- USD/CAD gains traction for the second day in a row and recovers further from a seven-week low.
- The pullback in oil prices weakens the CAD and acts as a tailwind amid modest dollar strength.
- High US bond yields benefit the USD amid worsening global economic outlook.
The pair USD/CAD has capitalized on the previous day’s recovery move from its lowest level since April 21 and has gained some traction for the second day in a row on Thursday. The pair maintains its buying tone during the European session and is now trading in the 1.2575-1.2580 area, up more than 0.15% on the day.
Crude oil prices experienced profit-taking from the three-month highs reached on Wednesday, due to the Imposition of a new mini-lockdown in Shanghai, China’s largest city and world financial center. This, in turn, weighed on the CAD, currency linked to raw materialsand acted as a tailwind for the USD/CAD pair amid modest US dollar strength.
The doubts that the main central banks can raise interest rates to curb inflation without affecting economic growth continued to weigh on investor sentiment. This was highlighted by the weaker tone in equity markets, which together with high yields on US Treasuries, provided some support for the safe haven dollar.
The benchmark 10-year US government bond yield remained above 3% amid concerns about rising inflationary pressures, which could force the Federal Reserve to tighten its monetary policy at a faster pace. Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war will drive consumer prices higher.
Therefore, the market’s attention will remain glued to the latest US consumer inflation figures on Friday, which could influence the Fed’s tightening path. The US CPI report will be accompanied by the publication of monthly data on employment in Canada. Key macroeconomic data should help investors determine the short-term path of the USD/CAD pair.
Meanwhile, investors could follow weekly US initial jobless claims data and Bank of Canada Governor Tiff Macklem’s speech scheduled for later in the American session. Additionally, US bond yields, broader market risk sentiment and oil price dynamics could boost the USD/CAD pair.
USD/CAD technical levels
Source: Fx Street
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