USD/CAD sits near multi-week top around mid-1.3300s amid bullish USD, softer Oil prices

The USD/CAD pair is seen consolidating its recent strong gains to a four-week high and oscillating in a narrow band around mid-1.3300s through the Asian session on Thursday.

The US Dollar (USD) stands tall near its highest level since July 7 touched on Wednesday as investors now seem convinced that the Federal Reserve (Fed) will stick to its hawkish stance. Despite the Fitch downgrade of the US credit rating, the incoming upbeat US macro data points to an extremely resilient economy and should allow the Fed to keep interest rates higher for longer. In fact, the US ADP report showed on Wednesday that private-sector employers added 324K jobs in July as compared to the 189K expected. This comes on the back of the upbeat US GDP print released last week and reaffirms market bets for further policy tightening by the Fed. The outlook remains supportive of elevated US Treasury bond yields, which continue to act as a tailwind for the buck and lends some support to the USD/CAD pair.

A stronger USD, meanwhile, offsets the optimism over data showing a substantial drop in US oil inventories over the past week and keeps the black liquid on the defensive for the second successive day. It is worth recalling that the official data showed that US crude inventories shrank by over 17 million barrels during the week to July 28, marking the biggest drawdown recorded since 1982. This indicates a substantial tightening in the markets, albeit does little to lend any support to Crude Oil prices. This, in turn, is seen undermining the commodity-linked Loonie and offering additional support to the USD/CAD pair. Moreover, the overnight move back above the 50-day Simple Moving Average (SMA), for the first time since early June, suggests that the path of least resistance for spot prices is to the upside.

Moving ahead, traders now look forward to the US economic docket – featuring the release of the usual Weekly Initial Jobless Claims, the ISM Services PMI and Factory Orders later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will drive demand for the safe-haven buck and provide some impetus to the USD/CAD pair. Apart from this, Oil price dynamics should contribute to producing short-term trading opportunities. The focus, however, remains on the crucial monthly employment details from the US – popularly known as the NFP report – and Canada on Friday.

Technical levels to watch