USD/CAD clings to gains above mid-1.2500s, looks to Powell/Yellen for fresh impetus
|- A combination of factors assisted USD/CAD to gain strong traction on Tuesday.
- The upbeat US economic outlook, risk-off mood benefitted the safe-haven USD.
- A sharp fall in crude oil prices undermined the loonie and remained supportive.
The USD/CAD pair maintained its strong bid tone through the mid-European session and shot to one-and-half-week tops in the last hour. The pair, however, retreated few pips thereafter and was last seen trading around the 1.2575 region, up 0.75% for the day.
The pair gained traction for the fourth straight session on Tuesday and build on its recent bounce from the 1.2365 region, or the lowest level since February 2018 touched last week. The strong momentum was sponsored by a broad-based US dollar strength and a fresh leg down in crude oil prices, which tend to undermine the commodity-linked loonie.
The greenback remained well supported by the upbeat US economic outlook and got an additional boost from a sharp pullback in the equity markets. The global risk sentiment took a turn for the worst after the US, EU, Britain and Canada – in a rare, coordinated move – imposed sanctions on Chinese officials for human rights abuses in Xinjiang.
The global flight to safety was reinforced by a further decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond extended its recent pullback from over a one-year high level of 1.754% touched last week, albeit did little to dent the underlying bullish sentiment surrounding the greenback.
Apart from the risk-off mood and a broad-based USD strength, renewed coronavirus jitters weighed on crude oil prices. Investors now seem worried that a new wave of COVID-19 infections, pandemic-related lockdown and the slow vaccine rollouts in Europe could hinder the anticipated recovery in demand for fuel products.
WTI crude futures plunged over 4% intraday and slipped back below the $59.00/barrel mark. This was seen as another factor that contributed to the USD/CAD pair's strong intraday positive move. However, slightly overbought RSI (14) on hourly charts held bulls from placing aggressive bets and capped the upside, at least for now.
Market participants now look forward to Fed Chair Jerome Powell and Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee. Judging from the prepared remarks, released on Monday, both Powell and Yellen would add to the narrative for a relatively faster US economic recovery from the pandemic.
This is likely to have a correspondingly positive impact on the greenback, which, in turn, should pave the way for a further near-term appreciating move for the USD/CAD pair. A sustained move beyond the 1.2600 mark will reaffirm the positive bias and allow bulls to challenge the 50-day SMA barrier, currently near the 1.2655-60 region.
Technical levels to watch
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