USD/CAD slides to multi-day low, below mid-1.2800s amid modest USD weakness
|- USD/CAD extended Friday’s sharp retracement slide and edged lower on Monday.
- The recent slump in the US bond yields, a positive risk tone weighed on the USD.
- Weaker oil prices could undermine the loonie and help limit losses for the major.
The USD/CAD pair attracted fresh selling near the 1.2900 mark on the first day of a new week and extended Friday's sharp retracement slide from the 1.2965 region. The modest intraday weakness dragged spot prices to a four-day low, around the 1.2840 region during the first half of the European session.
The recent sharp decline in the US Treasury bond yields, along with signs of stability in the financial markets, dented demand for the safe-haven US dollar. This, in turn, acted as a headwind for the USD/CAD pair and exerted downward pressure, though a combination of factors should help limit deeper losses.
Speaking at the ECB Forum in Sintra last Wednesday, Fed Chair Jerome Powell reaffirmed bets for more aggressive rate hikes and said that the US economy is well-positioned to handle tighter policy. The Fed’s non-stop chatter about interest rate hikes might continue to lend some support to the greenback.
Apart from this, the worsening global economic outlook, which could stall fuel demand recovery, led to a fresh leg down in crude oil prices. This could undermine the commodity-linked loonie and hold back traders from placing aggressive bearish bets around the USD/CAD pair, at least for the time being.
Investors remain concerned that rapidly rising interest rates and tightening financial conditions would pose challenges to global economic growth. Adding to this, the ongoing Russia-Ukraine war and the latest Covid-19 outbreak in China have been fueling worries about a possible economic recession.
This makes it prudent to wait for strong follow-through selling before traders start positioning for any further depreciating move. Given that the US markets are closed on Monday in observance of Independence Day, the USD/oil price dynamics might provide some impetus to the USD/CAD pair.
Technical levels to watch
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