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USD/CAD regains positive traction on Tuesday and draws support from a combination of factors.
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A retreat in crude oil prices weakened the loonie and acted as a tailwind amid fresh USD buying.
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The fundamental backdrop favours bulls; the focus remains glued to Fed Chair Powell’s testimony.
The USD/CAD pair attracts fresh buying near the 1.3600 round-figure mark on Tuesday and builds on its steady intraday ascent through the mid-European session. The momentum lifts spot prices to a fresh daily top, around the 1.3645 region in the last hour, and is sponsored by a combination of factors.
Crude Oil prices retreat from the highest level since late January touched this Tuesday amid fading optimism about a strong fuel demand recovery in China. In fact, data released earlier today showed a contraction in China’s crude imports in January and February, which, to a larger extent, overshadows supply concerns and weighs on the black liquid. This, in turn, undermines the commodity-linked Loonie, which, along with the emergence of fresh US Dollar buying, is seen lending support to the USD/CAD pair.
Growing acceptance that the Federal Reserve will continue to tighten its monetary policy and keep rates higher for a longer period acts as a tailwind for the greenback. Bets were reaffirmed by incoming US macro data, which indicated that inflation was not slowing as fast as expected and pointed to an economy that remains resilient despite rising borrowing costs. Moreover, a number of FOMC officials backed the case for a higher rate hike and opened the door for a 50bps lift-off at the March policy meeting.
Hence, the focus will remain glued to Fed Chair Jerome Powell’s semi-annual testimony before the Senate Banking Committee, due later during the North American session. Heading into the key event risk, some repositioning trade is seen dragging the US Treasury bond yields lower. This, along with a stable performance around the equity markets, might hold back traders from placing aggressive bullish bets around the safe-haven buck and keep a lid on any meaningful upside for the USD/CAD pair.
The Bank of Canada (BoC), meanwhile, had signalled in January a likely pause in its tightening cycle and is now expected to leave rates unchanged at the upcoming policy meeting on Wednesday. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the upside. Some follow-through buying beyond the February swing high, around the 1.3665 region, will reaffirm the near-term positive outlook and allow spot prices to make a fresh attempt to conquer the 1.3700 round-figure mark.
Technical levels to watch
USD/CAD
