Below the 1.3600 level, USD/CAD is still depressed, but the fall appears cushioned.

Oct 06, 2022

VOT Research Desk

On Thursday, a fresh supply of USD/CAD is met by the appearance of some USD selling.

The loonie is supported by the overnight increase in oil prices, which also adds to the decline.

Hawkish Fed predictions might help the pair by giving the dollar a boost.

The USD/CAD pair pulls back from around the 1.3700 level overnight and continues to decline into the first part of trade on Thursday. The pair is now trading towards the lower end of its daily range, somewhere between 1.3570 and 1.3575, and is down over 0.30% so far today.

The US dollar finds it difficult to build on the previous day’s strong recovery from a two-week low and runs into new supply, which puts pressure on the USD/CAD pair. A little decrease in US Treasury bond rates and a rise in risk sentiment both contribute to the continued flight from the safe-haven dollar. In addition, the recent rise in crude oil prices supports the commodity-linked loonie and adds to the positive outlook for the USD/CAD pair. After OPEC+ decided to reduce output by approximately 2 million bpd, the most since 2020, and tighten the world supply, the price of the dark liquid spiked to a three-week high.

However, worries that the effects of a worsening global economic crisis on gasoline demand may restrain any further advances for the dark liquid. The USD/CAD pair should be supported as a result of expectations for a more aggressive Fed policy tightening, which should benefit US bond rates and the dollar.

Officials from the Fed underlined the commitment of the US central bank to bringing inflation under control and reinforced expectations for another massive 75 bps rate rise at the November FOMC meeting. Prior to the US and Canadian monthly employment reports on Friday, this calls for prudence when putting wagers against the USD/CAD pair.

In the meanwhile, traders on Thursday will heed the publication of the Canadian Ivey PMI and US Weekly Initial Jobless Claims data. In addition, the statements of the FOMC members and Tiff Macklem, governor of the Bank of Canada, may provide the USD/CAD pair some significant momentum later in the early North American session.

USD/CAD Technical Analysis Report