USD/CAD steadies near 1.32 following a modest rebound from multi-month lows

After losing more than 100 pips on Wednesday, the USD/CAD pair continued to push higher today and slumped to its lowest level since late February at 1.3149. The pair, however, staged a modest recovery supported by profit-taking in the American session and was last seen moving sideways near the 1.32 handle, losing 0.6% on a daily basis.

The broad-based selling pressure surrounding the greenback following the FOMC's dovish shift in its policy statement, which heightened expectations of a rate cut as early as July, forced the pair to drop sharply in the second half of the week. According to the CME Group FedWatch Tool, markets are pricing a 61.5% probability of a 25 bps rate cut in July and a 38.5% probability of a 50 bps rate cut, leaving the odds of the Fed keeping the rates unchanged at next months meeting at 0%. The US Dollar Index, which rose to 97.77 on Tuesday, lost more than 1% in the last 24 hours and was last seen at 96.66.

On the other hand, revived hopes of the U.S. and China taking steps to reach a deal and to end the trade conflict by officially announcing a meeting with President Trump and President Xi at the G20 summit later this month provided a strong boost to crude oil prices and caused the commodity-sensitive loonie to gather further strength against its major peers. As of writing, the barrel of West Texas Intermediate was trading at its highest level of June at$57.18, adding 5.7% on the day.

On Friday, retail sales from Canada and Markit Manufacturing and Services PMI from the U.S. will be looked upon for fresh impetus. However, the pair is unlikely to make a deep correction of this recent fall with investors remaining convinced of a Fed rate cut in July.

Technical levels to watch for