USD/CAD trims previous losses to test 1.2700

The US dollar is regaining lost ground, favored by increasing risk aversion during Thursday’s US market session. The pair’s reversal from Wednesday's high at1.2750 has been contained at 1.2630 before bouncing up to est prices past 1.2700.

The US dollar firms up as sentiment worsens

The greenback has been regaining lost ground against its main rivals amid a somewhat sourer sentiment, in a choppy trading session at month and quarter-end. The US Dollar Index, which retreated about 0.4% during the European session, has firmed up after bouncing at 94.12, returning to 94.40 ad turning positive on the day.

Macroeconomic data has been mixed in the US. New claims for unemployment benefits increased for the third consecutive time, with 362,000 new applicants in the week of September 25, denting demand for the greenback. On the other hand, the US economy grew at a 6.7% pace in the second quarter, a tick up from the 6.6% increment previously estimated.

USD/CAD seen at 1.30 by the end of 2022 – CIBC

From a wider respective, the CIBC FX Analysis team expects the pair to remain at current levels over the next months and CAD depreciation in 2022: “While the BoC is likely to further taper its QE program in October, it will use that same meeting to push back its forecast for achieving a zero output gap into Q4 of 2022, and markets will begin to price in a lighter path for its policy rate as a result. Shortly thereafter, the start of a quick Fed tapering path will have investors upping medium-term projections for the fed funds rate, suggesting a weaker CAD in 2022 (…) Look for USD/CAD to end 2022 at 1.30, with a continued depreciation likely in 2023.”

Technical levels to watch