- A combination of factors pushes USD/CAD higher for the third consecutive day.
- Weaker oil prices weigh on CAD and support the pair’s upward movement.
- Optimistic Fed expectations and risk aversion benefit the safe-haven USD.
- USD/CAD extends its strong intraday gains and rises to one-month highs above the 1.2800 level at the start of Monday’s European session.
The USD/CAD pair has built on last week’s positive move and climbed higher for a third consecutive day as a result of a number of factors. A weaker tone around crude oil prices has hurt the CAD, a currency tied to commodity prices, ahead of Monday’s Canadian federal election. Combined with broad US dollar strength, this has given the pair additional impetus.
Although inflationary pressures in the US appear to be easing, incoming macroeconomic data indicate that the economic recovery will continue. In recent months, speculation has grown that the Fed will begin reversing its massive pandemic-era stimulus sooner rather than later. This is evident from the recent rise in US Treasury yields, which has continued to act as a tailwind for the USD.
Additionally, risk aversion has benefited the safe-haven US dollar as exemplified by sell-offs of equity markets. Investors are concerned about the rapid spread of the Delta variant and a slowdown in the global economy. Combined with the re-escalation of tensions between China and Western countries such as the US, UK, and Australia, these factors have weighed on risk sentiment.
In the latest rally, USD/CAD has reaffirmed Friday’s bullish break above the 1.2700 level and looks poised to move even higher. Investors may, however, become cautious ahead of this week’s FOMC meeting. On Wednesday, the Fed will announce its decision, which will have an impact on dollar price dynamics and provide further directional momentum.
Furthermore, the RSI on the 1-hour chart is already showing slightly overbought conditions. This makes it prudent to wait for some consolidation or a modest pullback before positioning for further gains. However, the bias still appears to be tilted in favor of the bulls as neither the U.S. nor Canada released any relevant economic reports on Monday.