The USD/CAD pair extended its recent bullish momentum and climbed to its highest level since early June on Monday. The pair was supported by a combination of factors, including rising US bond yields, looming recession fears, and a breakout above key technical levels.
US Dollar Strengthens on Rate Hike Expectations and Safe-Haven Demand
The US dollar (USD) remained well bid near its highest level in more than two months, as investors increased their bets for another 25 basis points rate hike by the Federal Reserve (Fed) in 2023. The Fed’s latest meeting minutes revealed that most policymakers agreed that tapering of the asset purchases could start later this year, while some also favored an earlier reduction of the stimulus. This boosted the market expectations for a sooner-than-expected policy tightening by the Fed, which lifted the US Treasury bond yields and supported the USD.
Apart from this, the USD also benefited from its safe-haven status, as the global market sentiment was weighed down by the resurgence of COVID-19 cases and the uncertainty over the economic recovery. The Delta variant of the coronavirus continued to spread rapidly across the world, forcing some countries to reimpose lockdowns and restrictions. This raised concerns about the impact of the pandemic on the global growth outlook and fueled the demand for the USD as a refuge against risk.
Canadian Dollar Undermined by Rising Oil Prices and Technical Factors
The Canadian dollar (CAD), on the other hand, failed to capitalize on the positive impact of rising oil prices, which tend to underpin the commodity-linked currency. Crude oil prices gained some positive traction for the third consecutive day, as Hurricane Ida disrupted the oil production in the Gulf of Mexico and reduced the supply glut. However, the CAD was unable to benefit from this, as the USD strength overshadowed the positive influence of higher oil prices.
Moreover, the technical outlook for the USD/CAD pair also favored bullish traders, as the pair broke out of a consolidation phase and cleared some important resistance levels. Last week, the pair sustained a move above the 200-day simple moving average (SMA) near the 1.3450 area, which was seen as a key trigger for bullish traders. The pair also surpassed the psychological 1.3500 mark and confirmed a bullish breakout from an ascending channel formation on the daily chart.
USD/CAD Outlook: Bulls Eye 1.3600 Mark Amid Absence of Major Data
The USD/CAD pair seems poised to extend its upward trajectory, as there is no major data release scheduled for Monday that could influence the pair’s movement. The only relevant event is a speech by Bank of Canada (BoC) Deputy Governor Timothy Lane, who will discuss digital currencies at an online event. However, his comments are unlikely to have a significant impact on the CAD, unless he hints at any policy change by the BoC.
Therefore, the pair’s direction will largely depend on the USD price dynamics and the broader market sentiment. The pair could face some resistance near Friday’s swing high, around the 1.3575 region, followed by the 1.3600 round figure. A convincing break above this level could pave the way for further gains towards the next hurdle near the 1.3655-1.3660 supply zone.
On the flip side, any corrective pullback is likely to find some support near the 1.3500 mark, which coincides with the upper boundary of the ascending channel. A decisive break below this level could negate the bullish bias and trigger some technical selling. The next support for the pair could be seen near the 1.3450 area, or the 200-day SMA. A sustained move below this level could drag the pair towards the 1.3400 round figure before it eventually drops to test the 1.3370 support zone.
