- A combination of factors triggers new selling around USD / CAD on Friday.
- The USD remains under pressure near multi-week lows amid declining expectations of a Fed rate hike.
- A rebound in crude oil prices benefits the CAD and contributes to the pair’s selling bias.
The pair USD / CAD moves lower during the European session on Friday, trading close to daily lows around the 1.2475-70 region.
Following the directionless price movements of the previous day, the pair has been witnessed new selling pressure on Friday and now it has moved close to the post-BoC lows. The fall is due to the prevailing bearish sentiment around the US dollar and positive crude oil prices, which tend to prop up the Canadian dollar, a currency tied to commodity prices.
Investors seem convinced with the view that any increase in inflation is likely to be temporary and have been lowering their expectations of a tightening of the Fed’s monetary policy ahead of schedule. This, to a greater extent, has offset a rally in US Treasury yields and has kept USD bulls on the defensive near multi-week lows during the first half of trading action.
On the other hand, a more optimistic future orientation by the BoC has offered some support to the loonie. The Canadian central bank, at its monetary policy meeting on Wednesday, advanced its forecast for the first interest rate hike to the second half of 2022. This, coupled with a continuing recovery in oil prices, has acted as factors that weigh on the USD / CAD pair.
In fact, WTI crude oil has built on the previous day’s recovery from lows of more than a week and has been supported by expectations of higher demand for fuel in the US and Europe. amid the loosening of lockdown restrictions. That said, renewed fears about another dangerous wave of coronavirus infections in Japan and India, the world’s third-largest oil importer, have limited oil profits.
From a technical perspective, the USD / CAD pair, so far, has struggled to register a significant recovery or find acceptance above the psychological level of 1.2500. This, in turn, suggests that the downward pressure may still be far from over. A subsequent dip below the 1.2460 region (weekly lows) will add credibility to the negative outlook and set the stage for further weakness.
Market participants are now awaiting the US economic calendar, highlighting the release of preliminary figures for the manufacturing and ed PMI. services. The data will offer a new perspective on how the economy is performing and will influence the USD. This, coupled with the oil price dynamics, should allow investors to seize some short-term opportunities around the USD / CAD pair.
USD / CAD technical levels
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