- USD/CAD rallied around 50 pips from a one-week low hit this Friday.
- The Fed’s aggressive rate hike bets help the dollar trim some of its steep intraday losses.
- Disappointing Canadian employment data weighs on the national currency and offers support.
- The rebound in oil prices continues to support the loonie and stops the rebound attempt.
The pair USD/CAD it has rebounded from the 1.2980 area, that is, from the one-week low reached this Friday, although it remains in negative territory for the third day in a row. The pair is trading close to the 1.3025 area during the first hour of the North American session, and is still losing almost 0.50% on the day.
Expectations that the Federal Reserve will tighten monetary policy at a faster pace help the US dollar trim some of its steep intraday losses to a new monthly low. The Canadian dollar, on the other hand, is hurt by disappointing national employment data. This, in turn, offers some support to the USD/CAD pair and contributes to the intraday rally of more than 50 pips.
Statistics Canada reported Friday that the number of employed people fell by 39,700 in August, versus expectations for an addition of 15,000. Other details of the publication revealed that full-time employment decreased by 77,200 and the unemployment rate increased from 4.9% in July to 5.4% during the reported month. However, this was offset by a sharp rise in crude oil prices.
Against the backdrop of a symbolic production cut by OPEC+, Russia’s threat to cut off oil flows to any country that supports a price cap for its crude raises fears of a tight global supply. Rising oil prices offer support for the black liquid, which is propping up the commodity-linked loonie amid a more aggressive Bank of Canada. This, in turn, keeps a cap on any further recovery of the USD/CAD pair.
Furthermore, markets appear to have already priced in a 75 basis point rate hike at the next FOMC meeting on September 20-21. This coupled with subdued action around US bond yields could deter USD bulls from making aggressive bets. Therefore, it will be prudent to wait for strong follow-on buying before positioning for any further appreciation moves for the USD/CAD pair.
In the absence of relevant economic releases in the US, scheduled speeches from Fed officials will play a key role in influencing USD demand. In addition, the dynamics of oil prices will be taken into account to take advantage of short-term trading opportunities. However, the USD/CAD pair remains on track to post heavy weekly losses and break a four-week winning streak to the 1.3200-1.3210 barrier.
Technical levels
Source: Fx Street
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