USD / CAD Holds On Gains Near One-Month Highs, Above Mid-1.2700s

  • A combination of supporting factors pushed USD / CAD near one-month highs on Thursday.
  • The Fed’s reduction plan and the risk aversion spirit acted as a tailwind for the greenback.
  • A prolonged decline in crude oil prices undermined the loonie and remained favorable.

The USD / CAD now appears to have entered a bullish consolidation phase and has been seen hovering in a range above the mid-1.2700, or near the one-month highs hit earlier this Thursday.

The pair built on its recent rebound from the key psychological 1.2500 bar and gained strong follow-up traction for the fourth day in a row. The momentum pushed the USD / CAD pair to the highest level since July 20 and was supported by a combination of factors.

Investors now seem convinced that the Fed is comfortable with reversing the crisis stimulus. In fact, the minutes of the July FOMC meeting released on Wednesday revealed the assessment of policymakers that progress had been made towards maximum employment and price stability targets.

Expectations that the Fed will start cutting asset purchases as soon as possible, along with the prevailing risk aversion environment, have pushed the safe haven US dollar to nine-month highs. This, in turn, was seen as a key factor that continued to push the USD / CAD pair higher.

The USD maintained its bid tone throughout the first North American session and did not appear affected by the mixed US macro releases. Weekly jobless claims in the United States fell to 348K from 377K previously, while the Philly Fed manufacturing index fell to 19.4 in August from 21.9.

On the other hand, the commodity-linked loonie was undermined by a further decline in crude oil prices. Concerns that the rapidly spreading Delta variant of the coronavirus could derail the global economic recovery and that demand for fuel has pushed oil prices near their three-month low.

Meanwhile, the oscillators on the hourly charts are already showing extremely tense conditions and have also started to enter the overbought zone on the daily chart. This seemed to be the only factor that kept the bulls from placing new bets and capping the winnings for the USD / CAD pair.

Nonetheless, the underlying backdrop remains strongly tilted in favor of bullish traders and supports the prospects for an extension of the recent positive movement. Therefore, any significant drop could be seen as a buying opportunity and remain limited, at least for now.

Technical levels to watch

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