|

USDCAD bulls eye a significant correction

  • USDCAD is on the brink of a move higher as the US Dollar firms. 
  • WTI pressured on Covid cases in China, denting CAD. 

USDCAD is making tracks on the upside on Monday, partly as oil prices fall and the greenback rallies against a basket of major currencies. The US Dollar is accumulating as investors kept their focus on the Federal Reserve's interest rate hiking path. Ahead of the open, a Fed member poured cold water over the US consumer Price Index upside surprise, arguing it was too soon to call for a pivot. 

At the time of writing, USDCAD is trading at 1.3286, up 0.27% on the day having traded between a low of 1.3239 and 1.3309 so far. The US Dollar index, DXY, is up some 0.2% having climbed from a low of 106.41 and reached a high of 107.27 so far, supported by comments from Federal Reserve Governor Christopher Waller. He crossed the wires and said Friday's inflation report was "just one data point," and that markets are "way out in front". 

Key comments

  • Will need to see a run of CPI reports to take a foot off the brake.    
  • Positive that goods prices came down with some moderation in services, but it needs to continue.  
  • US policy rate is "not that high" given level of inflation.  
  • Rate hikes so far has not "broken anything.  
  • The US housing market needed to slow down. 
  • Signal was to pay attention to the endpoint not the pace of rate increases, and until inflation slows the endpoint is "a ways out".  

Meanwhile, both US and Canadian government bond yields have been mixed following the Remembrance and Veterans Day holidays on Friday.  In this regard, we will have the Canadian inflation data for October, due on Wednesday. This could offer clues on the Bank of Canada's policy outlook. Money markets expect the central bank to raise interest rates by at least 25 basis points at its Dec. 7 policy announcement. 

Elsewhere, the price of oil has been falling since the start of the day. The reports of surging new Covid-19 infections in China, even after the country relaxed some of its quarantine policies last week, have dented the market's stability. West Texas Intermediate crude is down some 3.3% falling from a high of $89.82 to a low of $85.68. The drop came, as Reuters reports, following the news agency's report that ''new Covid-19 infections were surging in Beijing and other cities even as the country, the world's No.1 oil importer last week relaxed some of the Zero-Covid policies that shut-down major cities for weeks at a time, cutting in demand, while the new policies are seen as supportive for the country's economy.''

USDCAD weekly chart

The M-Formation is a compelling bullish feature, but there could still be some downside to come. 

A break of the support opens up the way to dynamic trendline support.

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

More from Ross J Burland
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD drops to daily lows near 1.1630

EUR/USD now loses some traction and slips back to the area of daily lows around 1.1630 on the back of a mild bounce in the US Dollar. Fresh US data, including the September PCE inflation numbers and the latest read on December consumer sentiment, didn’t really move the needle, so the pair is still on course to finish the week with a respectable gain.

GBP/USD trims gains, recedes toward 1.3320

GBP/USD is struggling to keep its daily advance, coming under fresh pressure and retreating to the 1.3320 zone following a mild bullish attempt in the Greenback. Even though US consumer sentiment surprised to the upside, the US Dollar isn’t getting much love, as traders are far more interested in what the Fed will say next week.

Gold makes a U-turn, back to $4,200

Gold is now losing the grip and receding to the key $4,200 region per troy ounce following some signs of life in the Greenback and a marked bounce in US Treasury yields across the board. The positive outlook for the precious metal, however, remains underpinned by steady bets for extra easing by the Fed.

Crypto Today: Bitcoin, Ethereum, XRP pare gains despite increasing hopes of upcoming Fed rate cut

Bitcoin is steadying above $91,000 at the time of writing on Friday. Ethereum remains above $3,100, reflecting positive sentiment ahead of the Federal Reserve's (Fed) monetary policy meeting on December 10.

Week ahead – Rate cut or market shock? The Fed decides

Fed rate cut widely expected; dot plot and overall meeting rhetoric also matter. Risk appetite is supported by Fed rate cut expectations; cryptos show signs of life. RBA, BoC and SNB also meet; chances of surprises are relatively low.

Ripple faces persistent bear risks, shrugging off ETF inflows

Ripple is extending its decline for the second consecutive day, trading at $2.06 at the time of writing on Friday. Sentiment surrounding the cross-border remittance token continues to lag despite steady inflows into XRP spot ETFs.