- The US dollar retreats after being rejected at 1.2390.
- The pair remains flat ahead of key macroeconomic events later this week.
- USD/CAD could extend losses towards 1.2200 – MUFG.
USD opened the week on a moderately positive tone and extended its rebound from Friday’s low at 1.2335 to hit resistance again in the 1.2385/90 area. USD/CAD has retreated to 1.2360 afterwards and remains virtually sideways on the day.
Sideways trading ahead of key macroeconomic data.
Major currency crosses are trading within previous ranges on Monday. With the US dollar slightly firmer against its main rivals in a sideways trading session. Investors remain cautious before the release of US GDP data and monetary policy decisions from the European Central Bank, Bank of Japan, and Bank of Canada.
A moderate pullback in US Treasury yields and lingering inflation concerns are keeping US dollar bulls at bay today. The yield on the 10-year bond is down to 1.63% on Monday from multi-month highs of 1.68% last week, weighing on the dollar’s demand.
In regard to the Canadian dollar. Growing expectations that the Bank of Canada will start raising rates sooner than expected are supporting the CAD. Which increased more than 3% in the past five weeks. Following this week’s meeting, some market voices anticipate that the BoC may start to raise the tone of its message, which could further boost the Canadian dollar.
USD/CAD: scope for a drop to 1.22 -MUFG
According to MUFG’s FX analysis team, the pair could reach 1.2200 in the near term as CAD is supported by fundamentals.
“Over the past month, the Canadian rate market has shifted sharply to price in two BoC rate hikes and a broader hiking cycle. QE purchases run at CAD2 B per week presently, and the BoC may announce plans to formally end QE this year. In order to maintain CAD’s upside momentum, the BoC should also drop its forward rate guidance”. “The next key support area is around the 1.2200 level.”