- USD / CAD moved lower for the second day in a row amid modest USD weakness.
- The optimistic expectations of the Fed could limit the losses of the USD and offer support to the pair.
- Weaker crude prices weigh on the CAD and favor the pair’s bulls.
The pair USD / CAD remains under pressure during Monday’s European session, moving near two-day lows around the 1.2530-25 region.
The pair extended the fall of previous day’s pullback from five-week highs, above the 1.2600 level, and moved lower for the second day in a row on Monday. A combination of factors dragged the US dollar away from the 16-month highs hit on Friday, which in turn put some pressure on the USD / CAD pair.
The University of Michigan survey released Friday showed that US consumer sentiment fell to a 10-year low in November amid concerns about a faster rise in inflationary pressures. This, coupled with a further drop in U.S. Treasury yields, kept USD bulls on the defensive during the first half of trading action on Monday.
However, strong expectations that the Fed would be forced to adopt a more aggressive monetary policy response to contain stubbornly high inflation they should help the USD attract some lower level buying. In fact, Fed fund futures indicate a 50% probability of an interest rate hike in July 2022 and a high probability of another hike in November.
In the meantime, Increasing pressure on US President Joe Biden to release supplies from the Strategic Petroleum Reserve weighed on crude prices. This could weigh on demand for the CAD, a currency tied to commodity prices, and further help limit any significant corrective pullback for the USD / CAD pair, at least for the time being.
Market participants are now awaiting the US economic calendar, which features the release of the Empire State Manufacturing Index. This, coupled with US bond yields and broader market risk sentiment, will drive demand around the USD. Investors will also take cues from oil price dynamics to seize some short-term opportunities around the USD / CAD pair.
USD / CAD technical levels
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