The USD/CAD pair builds on Monday’s previous session’s strong rally from the 1.2900 neighborhood. The momentum lifts spot prices to the 1.3075 area, or the highest level since mid-July during the early European session and remains well supported by broad-based U.S. dollar strength.
Fed Jerome Powell on Friday squashed hopes of a dovish pivot and signaled that interest rates would keep higher for longer to bring down soaring inflation. The markets were quick to react and are now pricing a greater chance of a 75 bps rate hike at the September FOMC meeting. This is reaffirmed by a fresh leg up in the U.S. Treasury bond yields and pushes the U.S. dollar to a fresh 20-year high on the first day of a new week.
Apart from this, the prevalent risk-off mood – as depicted by a sea of red across the equity markets – provides an additional lift to the safe-haven greenback. The combination of factors remains supportive of the strong bid tone surrounding the USD/CAD pair. That said, a modest uptick in crude oil prices could offer some support to the commodity-linked loonie and keep a lid on any meaningful upside for the major, at least for the time being.
Expectations that the major oil producer could cut output to stall the recent fall in oil prices helped offset hopes for the return of sanctioned Iranian oil exports. This, along with the conflict in Libya, acts as a tailwind for crude oil prices. The upside remains capped amid growing concerns that a global economic downturn will hurt fuel demand and the prospects for a faster policy tightening by the U.S. central bank.
The mixed fundamental backdrop, however, warrants caution for aggressive bullish traders before positioning for any further appreciating move amid missing relevant market-moving economic data.
USD/CAD Long (Buy)
Enter at: 1.30829