- USD/CAD falls for the fourth consecutive day and reaches a low of almost two weeks.
- Rising oil prices underpin loonie and exert strong pressure amid broad USD weakness.
- Bets on an aggressive Fed continue, although the US inflation data is first.
USD/CAD encountered resistance at the 1.3040 area and turned negative for the fourth day in a row on Monday. The pair fell to 1.2976, the lowest level since August 30 due to a combination of factors.
As investors look past Friday’s disappointing Canadian jobs data, a further recovery in oil prices from last week’s multi-month low underpins the loonie. Aside from this, the heavily bid tone surrounding the US dollar puts additional downward pressure on USD/CAD.
A symbolic output cut by OPEC+, coupled with Russia’s threat to cut off oil flows to any country that supports a price cap on its crude, raises global supply concerns and supports prices of the oil. On the other hand, the generally positive tone around equity markets puts downward pressure on the dollar, which is moving away from the two-decade highs reached last week.
That said, concerns that a deeper global economic downturn, coupled with new COVID-19 restrictions in China, could dampen fuel demand could cap oil prices. This, coupled with high yields on US Treasuries, bolstered by the prospect of more aggressive rate hikes from the Fed, should offer some dollar support, helping to limit USD/CAD losses. , at least for now.
Markets seem convinced that the Fed will continue to tighten monetary policy at a faster pace to tame inflation. A rate hike of 75 basis points at the FOMC meeting in September is already priced in. The US inflation figure for August will be key on Tuesday.
Technical levels
Source: Fx Street
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