USD/CAD clings to modest intraday gains, above 1.2300 mark
- USD/CAD gained some positive traction on Monday and was supported by a combination of factors.
- The USD witnessed some follow-through short-covering and recovered further from multi-week lows.
- Retreating oil prices undermined the loonie and remained supportive of the intraday positive move.
The USD/CAD pair edged higher through the early European session and climbed beyond the 1.2300 round-figure mark, hitting fresh daily tops in the last hour.
A combination of factors assisted the pair to gain some positive traction on the first day of a new trading week and move away from over three-year lows, around the 1.2265 region touched on Friday. The US dollar built on last week's goodish rebound from the lowest level since February 26. Apart from this, a weaker tone around crude oil prices undermined the commodity-linked loonie and extended some support to the USD/CAD pair.
As investors looked past the Fed's dovish message last week, the USD witnessed some short-covering move and was further supported by Friday's mostly upbeat US macro releases. The US Bureau of Economic Analysis reported on Friday that the annual Core PCE Price Index accelerated to 1.8% in March from 1.4% previous. Additional details revealed that Personal Income surged surge 21.1%, while Personal Spending increases by 4.2% in March.
Meanwhile, worries that a catastrophic second wave of COVID-19 infections in India overshadowed the optimism over a strong rebound in demand across developed countries. This, in turn, acted as a headwind for the Canadian dollar and provided an additional boost to the USD/CAD pair. That said, the divergence in monetary policies adopted by the Bank of Canada and the Federal Reserve might keep a lid on any strong gains for the major.
It is worth recalling that the BoC reduced its weekly asset purchases at the April policy meeting and brought forward the guidance for the first interest rate hike to the second half of 2022. Conversely, the Fed remains firm to maintain the current accommodative monetary policy. This makes it prudent to wait for some strong follow-through buying before confirming that the USD/CAD pair might have already bottomed out in the near term.
Market participants now look forward to the US economic docket, highlighting the release of ISM Manufacturing PMI later during the early North American session. This will be followed by Fed Chair Jerome Powell's speech, which will play a key role in influencing the USD. Apart from this, oil price dynamics and the broader market risk sentiment should allow traders to grab some short-term opportunities around the USD/CAD pair.
Technical levels to watch
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
