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27 Oct 2022

USD/CAD sticks to modest gains above mid-1.3500s, upside potential seems limited

  • USD/CAD edges higher on Thursday, though the uptick lacks any follow-through buying.
  • The less hawkish BoC decision, softer oil prices undermine the loonie and offer support.
  • The USD languishes near the monthly low and acts as a headwind ahead of the US GDP.

The USD/CAD pair attracts some buying on Thursday and sticks to its modest intraday gains through the early European session. The pair is currently placed just above the mid-1.3500s, though the uptick lacks bullish conviction.

The US dollar languishes near its lowest level since September 20 touched the previous day and acts as a headwind for the USD/CAD pair. Signs of a slowdown in the US economy cooled market expectations for a more aggressive policy tightening by the Federal Reserve. This has been a key 
factor behind the recent sharp pullback in the US Treasury bond yields, which continues to weigh on the greenback.

Moreover, a positive tone around the equity markets further contributes to capping the upside for the safe-haven buck. That said, the Bank of Canada's less hawkish move on Wednesday, to raise rates by 50 bps as against 75 bps anticipated, limits the downside for the USD/CAD pair. Furthermore, a modest downtick in crude oil prices undermines the commodity-linked loonie and offers support to the major.

The mixed fundamental backdrop warrants some caution for aggressive traders and positioning for a firm intraday direction. Market participants now look forward to the release of the Advance US Q3 GDP report, due later during the early North American session. Thursday's US economic docket also features Durable Goods Orders and the usual Weekly Initial Jobless Claims, which might influence the USD.

Traders will also take cues from the broader market risk sentiment and oil price dynamics to grab short-term opportunities around the USD/CAD pair. The focus, however, remains glued to next week's FOMC policy meeting. This, along with the closely-watched US monthly jobs report (NFP), will play a key role in determining the next leg of a directional move for the greenback and the major.

Technical levels to watch

 

Oct 27, 2022

USD/CAD to reach the 1.40 handle before year-end – Rabobank

The Bank of Canada (BoC) announced a 50 bps increase in the policy rate to 3.75%. USD/CAD dropped back below 1.36 after a spike to 1.3650. Nonetheless
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Oct 27, 2022

ECB: Big rate hike of 75 bps not enough to strengthen confidence and bring down inflation – Commerzbank

More and more are switching to the inflation pessimist camp. Another big rate hike of 75 basis points at today's European Central bank (ECB) council m
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