USDCAD climbs to 1.3530, downside remains favored amid a solid risk-on mood

The USDCAD pair has kicked off the second week of November on a gap-up note as a sheer decline move has resulted in a short covering. The rebound is not likely to sustain as the risk appetite theme is intact in the entire market.

The US dollar index (DXY) is in a sideways profile in early Tokyo after bloodshed on Friday. All pullbacks in the mighty DXY were considered as selling opportunities by the market participants as chatters started over a possible slowdown in Federal Reserve (Fed)’s rate hike pace.

While the 10-year US Treasury yields are firmer above 4.16% despite falling odds for a 75 basis point (bps) rate hike in December.  The odds for a three-quarter to a percent rate hike have trimmed to 38.5% after a less-hawkish commentary from Chicago Fed President Charles L. Evans.

Fed Evans is of the view that smaller rate hikes will be announced ahead as front-loading by the US central bank is done as risk is becoming two-sided sooner. Fed policymaker further added that "There's ample capacity" to tighten monetary policy even at a slower pace, he said. "We have accomplished front-loading and now we are at the point where we are looking for the right level of restrictiveness and mindful of data dependency in a world where inflation just lags more than the real economy."

The Loonie got strengthened on Friday after the release of the robust payroll data. The economy has added 108.3k jobs vs. the expectations of 10k. Analysts at CIDC point out the surge could simply be a sign that some of the declines seen over the summer were simply statistical noise. According to them, the data support their call for a further 50bp interest rate hike at that time, but they warn there is still one more employment report to come before the next Bank of Canada (BOC) meeting.

On the oil front, oil prices are holding themselves around $92.00 as expectations of a slowdown in the Fed’s rate hike have triggered chances of acceleration in oil demand’s prospects. Optimism is supported oil gathering pace and current upside momentum could send the oil prices further ahead.