USD/CAD retreats from weekly tops, trades with modest losses around 1.2720 area
- USD/CAD witnessed some selling on Thursday and eroded a part of the overnight gains.
- The onset of USD profit-taking seemed to be the only factor exerting downward pressure.
- Hawkish Fed expectations should help limit any meaningful slide for the USD and the pair.
The USD/CAD pair remained depressed through the early European session and was last seen hovering near the lower end of its daily trading range, around the 1.2720 region.
The pair struggled to capitalize on this week's goodish rebound from sub-1.2600 levels and witnessed some selling on Thursday, snapping two consecutive days of the winning streak. The pullback from weekly tops lacked any obvious fundamental catalyst and is more likely to be limited amid the prevalent bullish sentiment surrounding the US dollar.
The greenback has been gaining strong positive traction amid firming market expectations that the Fed will begin rolling back its massive pandemic-era stimulus as soon as November. Adding to this, the markets also seem to have started pricing in the possibility of a Fed rate hike in 2022, which was evident from the recent surge in the US Treasury bond yields.
That said, the risk-on mood – as depicted by a strong move up in the equity markets – prompted the USD bulls to take some profits off the table. In fact, the key USD Index witnessed a modest pullback from the highest level since September 2020 touched in the previous day. This, in turn, was seen as a key factor that exerted some downward pressure on the USD/CAD pair.
Meanwhile, a subdued price action around oil prices did little to influence the commodity-linked loonie or provide any meaningful impetus to the USD/CAD pair. With the USD price dynamics turning out to be an exclusive driver of the intraday movement, prospects for an early policy tightening by the Fed should assist the pair to attract some dip-buying at lower levels.
Market participants now look forward to the US economic docket, highlighting the final GDP print and Weekly Initial Jobless Claims. Apart from this, Fed Chair Jerome Powell's testimony before the Committee on Financial Service and the US bond yields will influence the USD. Traders might further take cues from oil price dynamics for some 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.
