USD/CAD edges higher amid modest USD strength, lacks follow-through beyond 1.3400 – by hareshmenghani USDCAD Bonds Recession Fed Currencies
stick to a mildly positive tone heading into the North American session and look to build on the momentum beyond the 1.3400 round-figure mark.
The US Dollar gains some positive traction and stalls its recent decline to a seven-month low, which, in turn, is seen as a key factor lending support to the USD/CAD pair. A modest uptick in the US Treasury bond yields, along with the prevalent cautious market mood, help revive demand for the safe-haven greenback. The USD uptick could also be attributed to some repositioning trade ahead of Fed Chair Jerome Powell's speech.
Investors will look for clues about the pace of Fed rate hikes at upcoming meetings, which will play a key role in driving the USD demand. The mixed US jobs report and the disappointing release of the US ISMon Friday lifted bets for a less aggressive policy tightening by the Fed. Traders will also scan the US consumer inflation figures, due on Thursday to determine the next leg of a directional move for the USD/CAD pair.
In the meantime, subdued action around crude oil prices, amid mixed economic signals, fails to provide any impetus to the commodity-linked Loonie or thepair. The latest optimism over China’s biggest pivot away from its strict zero-COVID policy lends some support to the black liquid. That said, worries that a deeper global economic downturn will hurt fuel demand keeps a lid on any meaningful upside for oil prices.
In the absence of any relevant market-moving economic releases, either from the US or Canada, the fundamental backdrop warrants some caution before placing directional bets. The recent breakdown below a technically significant 100-day SMA, meanwhile, favours bearish traders and supports prospects for deeper losses. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.
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