The USD/CAD pair off a two-year high but remaining comfortably over the 1.3800 mark.

Oct 11, 2022
VOT Research Desk

Key News – Insights and Analysis

The Market Perspective:

The USD/CAD pair gains momentum for the second day in a row, reaching its highest level on Tuesday since May 2020. The pair maintains its gains throughout the early European session just below the mid-1.38000s, and it seems prepared to continue the recent solid advance that has been ongoing for the past week or so.

• On Tuesday, a number of events cause the USD/CAD to reach its highest level since May 2020.
• The loonie is weakened by falling oil prices and finds support against a rising USD.
• Aggressive Fed rate hike bets, recession fears continue to benefit the safe-haven buck. 

Fears of a recession and aggressive Fed rate hike bets have continued to support the safe-haven dollar.

On Tuesday, the USD/CAD pair gains momentum for the second straight day, reaching its highest point since May 2020. Throughout the early European session, the pair maintains its gains just below the mid-1.38000s and appears ready to extend the recent robust rally seen over the past week or so.

The dollar continues to benefit from concerns about a recession and geopolitical risk, as well as the potential for a more aggressive policy tightening by the US central bank. Markets have been pricing in another massive 75 basis points increase in November because they appear to be convinced that the Fed will continue to raise interest rates more quickly to control inflation. The overnight hawkish remarks made by Fed Vice Chair Lael Brainard boosted the bets even more.

In turn, this continues to back higher yields on US Treasury bonds. Haven flows are also thought to be driven by the prevalent risk-off environment, which favors the buck. Despite concerns about economic headwinds caused by rapidly rising borrowing costs, market sentiment remains fragile. Investors’ appetite for riskier assets is tempered by a further escalation of the Russia-Ukraine conflict and trade tensions between the US and China.

The USD/CAD pair’s path of least resistance is likely to be upward, as indicated by the fundamental factors previously mentioned. However, aggressive bullish traders should exercise caution in the absence of relevant market-moving economic releases from the US or Canada due to the lack of follow-through buying. However, on Tuesday, traders may be able to take advantage of short-term opportunities thanks to speeches by influential FOMC members that could alter the dynamics of the USD price.

levels to watch for

USD/CAD