- USD/CAD struggles to build on its nice rebound from a one-week low.
- The risk appetite boost weighs on the safe haven dollar and acts as a headwind.
- Bearish oil prices weaken the loonie and should help limit any significant decline.
The pair USD/CAD bounces back from 1 1/2 week low hit on Tuesday, though momentum falters near 1.3780 area. The pair pulls back to 1.3700 during the early American session and remains at the mercy of the US dollar’s price action.
The prevailing risk-on environment, represented by a strong rally in equity markets, is not helping the safe-haven dollar capitalize on its modest intraday gains. This, in turn, acts as a headwind for the USD/CAD pair, although a combination of factors warrants bear traders caution and before positioning themselves for deeper losses.
Prospects for more aggressive policy tightening by the Fed could continue to support the dollar and warrant some caution before placing bearish bets on USD/CAD. In fact, current market prices indicate a near 100% chance of the Fed’s fourth successive 75bp rate hike in November.
In addition, fears that a deeper global economic downturn will affect fuel demand are weighing on crude oil prices. This could undermine the commodity-linked loonie and help limit the USD/CAD’s decline. Therefore, it will be prudent to wait for strong selling before confirming that spot prices have peaked.
Market participants are now expecting the Industrial Production and Capacity Utilization Rate data to provide some momentum. This, coupled with US bond yields and broader risk sentiment, will drive demand for dollars. Additionally, traders will be guided by the dynamics in oil prices, though the focus will be on Wednesday’s Canadian consumer inflation numbers.
Technical levels to watch
Source: Fx Street
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