- USD/CAD gains some positive traction and climbs to over a one-week high on Tuesday.
- A combination of factors continues to push the USD higher and lend support to the pair.
- An intraday rise in Crude Oil prices underpins the Loonie and caps any meaningful gains.
The USD/CAD pair struggles to capitalize on its intraday positive move and retreats a few pips from the vicinity of mid-1.3500s, or over a one-week high touched earlier this Tuesday. The pair trades with a mild positive bias heading into the North American session and is currently placed just above the 1.3500 psychological mark.
Crude Oil prices rally over 1% amid hopes for an improvement in US fuel demand and disruptions in Canadian supply due to wildfires in the oil-rich Alberta province. This, in turn, underpins the commodity-linked Loonie and turns out to be a key factor acting as a headwind for the USD/CAD pair, though resurgent US Dollar (USD) demand should help limit the downside, at least for the time being. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs to a fresh two-month high and draws support from a combination of factors.
The overnight hawkish remarks by a slew of influential Federal Reserve (Fed) officials lifted market bets that the US central bank will keep interest rates higher for longer. This, along with hopes that US politicians can come together on a debt ceiling deal, keeps the US Treasury bond yields elevated and continues to benefit the Greenback. Apart from this, worries over slowing global growth, particularly in China, further benefit the Greenback’s relative safe-haven status and contribute to limiting any meaningful pullback for the USD/CAD pair, at least for the time being.
Market participants now look forward to the US economic docket, featuring the flash PMI prints, New Home Sales data and the Richmond Manufacturing Index. This, along with the debt ceiling talks and the US bond yields, will influence the USD demand and provide some impetus to the USD/CAD pair. Traders will further take cues from Oil price dynamics to grab short-term opportunities. Meanwhile, the aforementioned mixed fundamental backdrop and the recent range-bound price action witnessed over the past week or so warrant some caution before placing directional bets.
Technical levels to watch
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The USD/CAD currency pair retreated from a one-week high on Friday as rising Oil prices and a stronger United States dollar limited the downside.
The USD/CAD pair experienced a sharp sell off during mid-morning trading, with the pair falling from its one-week high of 1.3173 to the current level of 1.3107.
The decline was primarily driven by rising Oil prices, which touched a new six month high of $53.10 per barrel on Friday as geopolitical tensions in the Middle East continued to escalate.
The stronger US dollar also contributed to the USD/CAD pair’s decline, as the greenback strengthened against a basket of major currencies following the release of better-than-expected US economic data. The US dollar index rose to 97.64, its highest level in nearly three weeks.
The technical picture for the USD/CAD pair remains bearish as the pair has failed to break above the resistance level of 1.3200. The 100-daily moving average at 1.3066 has been acting as strong support, limiting the downside.
In the near-term, analysts believe that the strength of the US dollar and rising Oil prices will limit the downside for the USD/CAD pair, with the pair expected to remain rangebound between the 1.3100 to 1.3200 level.
Overall, the macroeconomic environment remains favorable for the US dollar, with the US economy continuing to show signs of improvement. With that in mind, any potential upside for the USD/CAD pair could be limited, as traders remain cautious ahead of the US Federal Reserve’s monetary policy meeting in March.