|

USD/CAD pokes 23-month high near 1.3270 as oil drops, DXY cheers hawkish Fed bias

  • USD/CAD remains on the front foot around the highest levels since October 2020.
  • Downbeat Canadian inflation contrasted mostly firmer US housing data, risk-off to favor bulls.
  • Yields dribble around multi-year high to underpin USD strength ahead of Fed.
  • Fears that aggressive rate hikes will curb demand weigh on oil prices.

USD/CAD grinds higher past 1.3350, close to 1.3370 at the latest, as bulls brace for the Fed showdown during early Wednesday. That said, fears of aggressive Fed rate hikes and downbeat prices of Canada’s key export item WTI crude oil propelled the quote towards the highest levels since October 2020 the previous day, taking rounds to the multi-day high of late.

WTI crude oil prints a three-day downtrend as it refreshes an intraday low near $83.40 by the press time. “The OPEC+ producer grouping - the Organization of the Petroleum Exporting Countries and associates including Russia - is now falling a record 3.58 million barrels per day short of its targets, or about 3.5% of global demand. The shortfall highlights underlying tightness of supply in the market, even as recession fears drag prices lower,” reported Reuters.

On the other hand, the US Dollar Index (DXY) prints mild gains around 110.25 as it pokes the two-decade high marked earlier in the month. In doing so, the greenback’s gauge versus the six major currencies cheers hawkish Fed bets and fears emanating from China and Russia.

While the Fed’s 75 basis points (bps) rate hike bore 83% chance, the latest chatters over the 1.0% rate lift seemed to have favored the risk-aversion. Nouriel Roubini, a well-known global economist, joined the league of Fed hawks on Tuesday. “The Fed started a two-day meeting on Tuesday, with rate futures traders pricing in an 83% chance of a 75 basis-point hike and a 17% probability of a 100 bps of tightening,” said Reuters.

The downbeat inflation in Canada and mixed US housing numbers are also the reason for the USD/CAD strength. That said, Canada’s Annual Consumer Price Index (CPI) declined to 7.0% versus 7.3% expected and 7.6% prior readings. Alternatively, the US Building Permits to 1.517M in August versus 1.61M forecast and 1.685M prior. However, Housing Starts improved to 1.575M compared to 1.445M market consensus and 1.404M previous readings.

On the other hand, Reuters reported that the Asian Development Bank (ADB) on Wednesday cut its growth forecasts for developing Asia for 2022 and 2023 amid mounting risks from increased central bank monetary tightening, the fallout from the war in Ukraine and COVID-19 lockdowns in China. Joining the line is the news of a snap lockdown in the steel hub of Tangshan, due to China’s zero covid policy, which recently challenged the market sentiment and strengthened the safe-haven demand. Furthermore, headlines suggesting US Senators’ demand for secondary sanctions on Russian oil also appear to challenge the market’s risk appetite.

Amid these plays, the S&P 500 Futures lick its wounds near 3,880 after declining the most in one week the previous day whereas the US benchmark Treasury bond yields retreat from the multi-day high. That said, the US 2-year Treasury yields jumped to the highest level in 15 years while the 10-year counterpart also rose to the 11-year top during the pre-Fed cautious mood.

Looking forward, the attention will be on how the Fed manages to avoid recession and still try to tame inflation, which in turn highlights today’s economic forecasts and a speech from Fed Chairman Jerome Powell as more important events than the interest rate announcement.

Technical analysis

Unless declining below a 13-month-old resistance line, around 1.3285 by the press time, USD/CAD remains on the way to October 2020 high near 1.3420.

Additional important levels

Overview
Today last price1.3368
Today Daily Change0.0003
Today Daily Change %0.02%
Today daily open1.3365
 
Trends
Daily SMA201.3121
Daily SMA501.2985
Daily SMA1001.2919
Daily SMA2001.2801
 
Levels
Previous Daily High1.3375
Previous Daily Low1.3227
Previous Weekly High1.3308
Previous Weekly Low1.2954
Previous Monthly High1.3141
Previous Monthly Low1.2728
Daily Fibonacci 38.2%1.3319
Daily Fibonacci 61.8%1.3284
Daily Pivot Point S11.327
Daily Pivot Point S21.3175
Daily Pivot Point S31.3122
Daily Pivot Point R11.3417
Daily Pivot Point R21.347
Daily Pivot Point R31.3565

Author

Anil Panchal

Anil Panchal

FXStreet

Anil Panchal has nearly 15 years of experience in tracking financial markets. With a keen interest in macroeconomics, Anil aptly tracks global news/updates and stays well-informed about the global financial moves and their implications.

More from Anil Panchal
Share:

Editor's Picks

AUD/USD remains depressed 0.7000, awaits FOMC Minutes

AUD/USD struggles to capitalize on its recent recovery move and trades with a negative bias below 0.7000 in Wednesday's Asian session. Amid geopolitical uncertainty, the US Dollar attracts some dip-buyers after a fresh leg up in US bond yields, keeping the pair under pressure despite hawkish RBA expectations. All eyes now remain on the FOMC Minutes.

USD/JPY holds firm near 158.50 ahead of Fed Minutes

USD/JPY hangs close to a one-and-a-half-week high near 158.50 in the Asian session on Wednesday, with bulls now awaiting a move beyond the 200-day SMA hurdle before positioning for further gains ahead of the FOMC Minutes. Meanwhile, a fresh leg up in US bond yields revives US Dollar demand amid geopolitical uncertainties, boosting the pair amid dovish BoJ commentary.

Gold extends range play around $4,150, with eyes on FOMC Minutes

Gold edges lower in the Asian session on Wednesday, stalling the previous day's goodish bounce from the $4,100 neighborhood, or a two-month low. The safe-haven US Dollar attracts some dip-buyers following this week’s pullback from the YTD high amid geopolitical uncertainties. This, along with a fresh leg up in US bond yields, caps non-yielding bullion, which remains confined within a one-week-old range ahead of FOMC Minutes.

ZEC expands institutional momentum as Winklevoss files for Zcash ETF
Winklevoss Asset Services, co-owned by crypto exchange Gemini founders Cameron and Tyler Winklevoss, filed a Form S-1 registration statement with the US Securities and Exchange Commission (SEC) on Tuesday for the Winklevoss Zcash (ZEC) ETF. The filing proposes a fund that would hold ZEC and seek to track its price.
RBI looks set to step up Repo Rate by 25 bps to 5.5%

The Reserve Bank of India is set to announce its bi-monthly monetary policy decision on Wednesday at 10:00 AM IST, in a meeting where the central bank is expected to initiate an interest rate hike cycle after maintaining a status-quo so far this calendar year. According to the market consensus, the RBI will hike its key Repo Rate by 25 basis points to 5.5% from 5.25%.

Eurozone inflation just hit 3.8%, its highest in three years. This chart shows why the ECB can’t simply hike its way out

The ECB would normally have a relatively straightforward answer to inflation running almost twice its target: raise interest rates. But these are not normal circumstances. This time, the bond market is already doing part of the tightening for it, leaving the ECB facing an increasingly difficult dilemma.