- USD/CAD receives support from a combination of factors and approaches 1.3400 again.
- The pullback in oil prices weakens the Loonie and acts as a tailwind amid modest USD strength.
- The less hawkish outlook from the Fed could constrain the USD ahead of Wednesday’s key US CPI report.
The pair USD/CAD is supported by the previous day’s late bounce from the 1.3315 area, ie more than a three-week low, and gains some traction on Tuesday. The pair approaches 1.3400 again during the mid European session, thanks to a combination of factors.
Crude oil prices fall against a profit-taking backdrop following a recent strong recovery from 17-month lows, in turn weakening the commodity-linked Loonie. Elsewhere, the US dollar rises for the second day in a row on hopes that the US banking sector is not heading towards a major crisis, further boosting the USD/CAD pair. In fact, the Fed’s Official Lending Survey released on Monday showed that the tightening of credit conditions was due to aggressive rate hikes, not severe banking sector stress.
Apart from this, a softer risk tone – as evidenced by a further leg down in equity markets – further benefits the safe-haven dollar and contributes to the supply tone surrounding the USD/CAD pair. That being said, the growing acceptance that the Fed is nearing the end of its year-long rate-raising cycle could keep any significant rally in the dollar capped. On the other hand, the recent optimism around the recovery in fuel demand, fueled by easing fears of an imminent Recession, should act as a tailwind for Oil prices. This, in turn, should cap gains for the major pairs and warrants caution before positioning for another intraday rally.
Traders may also refrain from making aggressive bets in the absence of market-relevant economic releases from either the US or Canada, and before the latest US consumer inflation figures on Wednesday. US CPI reporting will be key to influencing expectations for the Fed’s next move. This, in turn, should boost near-term USD demand and help determine the next leg of a directional move for the USD/CAD pair. Therefore, it would be prudent to wait for strong buying before confirming that spot prices have bottomed out near 1.3300.
technical levels
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
