USD/CAD eases from monthly peak amid softer USD, up a little around mid-1.3500s
- USD/CAD touches a fresh monthly high on Monday, albeit lacks follow-through.
- A modest recovery in Oil prices underpins the Loonie and acts as a headwind.
- Sliding US bond yields weigh on the USD and collaborate to capping the upside.
The USD/CAD pair eases from a fresh monthly peak touched earlier this Monday and trades around the 1.3550 area, up less than 0.10% for the day heading into the North American session.
Crude Oil prices bounce off the monthly low amid the prospect of tighter supplies on OPEC+ supply cuts, which, in turn, is seen underpinning the commodity-linked Loonie. The US Dollar (USD), on the other hand, is weighed down by a further decline in the US Treasury bond yields and acts as a headwind for the USD/CAD pair. That said, a combination of factors continues to lend some support to the major and supports prospects for an extension of the recent recovery move from the 1.3300 mark, or a two-month low touched on April 14.
The upside for the black liquid seems limited amid concerns that rising borrowing costs will hamper global economic growth and dent fuel demand. Furthermore, growing acceptance that the Federal Reserve (Fed) will continue raising interest rates to curb inflation, along with a generally weaker risk tone, should lend some support to the safe-haven Greenback. This, in turn, warrants some caution for bearish traders and before positioning for any meaningful corrective pullback in the absence of any relevant market-moving data.
In fact, the markets have fully priced in a 25 bps lift-off at the next FOMC policy meeting in May and the Fed funds future indicates a smaller chance of another rate hike in June. The bets were lifted by the recent hawkish remarks by several Fed officials and the incoming positive US macro data, which suggested that the world's largest economy remained resilient. This, in turn, favours the USD bulls. Traders, however, might refrain from placing aggressive bets and prefer to wait for this week's important US economic releases.
A rather busy week kicks off with the release of the Conference Board's US Consumer Confidence Index on Tuesday, followed by the US Durable Goods Orders data on Wednesday. The focus, however, will remain glued to the release of the US Q1 GDP report on Thursday and the US Core PCE Price Index - the Fed's preferred inflation gauge - on Friday. This will play a key role in influencing the USD demand, which, along with Oil price dynamics, should assist investors to determine the near-term trajectory for the USD/CAD pair.
Technical levels to watch