- USD/CAD comes under fresh selling pressure and is weighed down by a combination of factors.
- A follow-through rally in Oil prices underpins the Loonie and exerts pressure amid a weaker USD.
- The emergence of some buying around the 1.3400 mark warrants some caution for bearish traders.
- Investors now look to monthly Canadian GDP and US Consumer Confidence for a fresh impetus.
The USD/CAD pair struggle to capitalize on its recent move up to over a two-week high - just above the 1.3500 psychological mark - and meets with a fresh supply on Tuesday. Spot prices, however, manage to find some support ahead of the 1.3400 round figure and bounce back to the 1.3450 area during the first half of the European session.
The overnight US Dollar bounce from a technically significant 200-day Simple Moving Average (SMA) fades rather quickly amid growing acceptance that the Fed will slow the pace of its policy tightening. Apart from this, a strong follow-through rally in Crude Oil prices underpins the commodity-linked Loonie and exerts downward pressure on the USD/CAD pair.
Crude Oil prices build on the previous day's solid recovery from the YTD low and rally around 2% amid speculations that OPEC will announce more supply cuts at its meeting on Sunday. The upside for the black liquid, however, remains capped amid worries that the worsening COVID-19 situation in China will hurt economic activity and dent fuel demand.
Moreover, the overnight hawkish remarks by Fed officials, along with the cautious mood, lend support to the safe-haven buck and the USD/CAD pair. It is worth recalling that St. Louis Fed President James Bullard, New York Fed President John Williams and Fed Vice Chair Lael Brainard reiterated that more rate hikes were warranted to combat inflation.
That said, a dovish assessment of the November Federal Open Market Committee (FOMC) meeting minutes released last week cemented bets for a relatively smaller 50 bps lift-off in December. This might continue to act as a headwind for the USD and cap gains for the USD/CAD pair. Hence, it will be prudent to wait for a sustained strength beyond the 1.3500 mark before placing fresh bullish bets.
Market participants now look forward to Tuesday's economic docket, featuring the release of monthly Canadian GDP print and the Conference Board's US Consumer Confidence Index. This, along with the risk sentiment, will drive the USD demand. Traders will further take cues from Oil price dynamics to grab short-term opportunities around the USD/CAD pair.
Technical levels to watch
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