- A combination of factors dragged USD/CAD lower for the second straight day on Monday.
- Reduced bets for an aggressive Fed rate hike move, a positive risk tone weighed on the USD.
- Rebounding oil prices underpinned the loonie and exerted additional pressure on the major.
The USD/CAD pair extended last week’s sharp retracement slide from the 1.3225 region, or the highest level since November 2020 and witnessed selling for the second straight day on Monday. The downward trajectory dragged spot prices further below the 1.3000 psychological mark during the early European session and was sponsored by a combination of factors.
Diminishing odds for more aggressive Fed rate hikes, along with signs of stability in the financial markets, dragged the safe-haven US dollar away from a two-decade high. Apart from this, a goodish pickup in crude oil prices underpinned the commodity-linked loonie and prompted some follow-through selling around the USD/CAD pair on Monday.
Two of the most hawkish FOMC members – Fed Governor Christopher Waller and St. Louis Fed President Jim Bullard – said last Thursday that they were not in favour of the bigger rate hike. This, in turn, forced investors to scale back their expectations for a supersized 100 bps Fed rate hike in July, which continued acting as a headwind for the USD.
A weaker greenback and tight global supplies helped offset recession fears, which, along with fresh COVID-19 lockdowns in China, had raised concerns about the fuel demand outlook. Apart from this, the Bank of Canada’s surprise 100 bps rate hike last week offered some support to the Canadian dollar and exerted downward pressure on the USD/CAD pair.
With the latest leg down, spot prices have reversed last Thursday’s strong move up and moved well within the striking distance of the post-BoC swing low. The mentioned area, around the 1.2935-1.2930 region should act as a pivotal point, which if broken decisively would be seen as a fresh trigger for bearish traders and pave the way for further losses.
In the absence of any major market-moving economic releases, the broader market risk sentiment could drive the USD demand. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair.
Technical levels to watch