- USD / CAD gains some positive traction on Monday amid a modest rebound in USD demand.
- Bullish oil prices could benefit the CAD and limit any further gains in the pair.
- Investors could also refrain from opening aggressive positions ahead of the FOMC’s key monetary policy decision.
The pair USD / CAD moves higher during the European session on Monday and has reached a four-day high, around the region of 1.2745-50 in the last hour.
After having defended the 1.2700 level, the USD / CAD pair captured some buying on the first day of a new week and is now looking to take advantage of the post-BoC recovery last week from near the 1.2600 level. The rebound is due exclusively to a rebound in demand for the US dollar and does not appear to be affected by a rebound in crude prices, which tend to benefit the CAD, currency linked to the prices of raw materials.
USD remains strong amid firm expectations that the Fed will tighten its monetary policy sooner rather than later to contain stubbornly high inflation. Speculation was reinforced after data released on Friday showed the US headline CPI accelerating to the highest level since 1982 in November. Furthermore, the core CPI posted the steepest rise since mid-1991.
Meanwhile, Diminishing concerns that the Omicron variant of the coronavirus would have a limited impact on global fuel demand acted as a tailwind for oil prices. Apart from this, the prevailing risk appetite could outweigh the safe haven USD and limit the rally for the USD / CAD pair. This warrants some caution for aggressive bulls before positioning for any further gains.
Investors might also be reluctant and prefer to wait on the sidelines before this week’s key event, the highly anticipated monetary policy decision from the FOMC on Wednesday. As markets have been pricing in the possibility of an eventual rate hike in May 2022, the result will influence USD demand and provide a new directional boost to the USD / CAD pair.
Meanwhile, broader market risk sentiment will propel the safe-haven USD. Aside from this, investors will take more clues from oil price dynamics to seize some short-term opportunities around the USD / CAD pair amid the absence of any relevant economic data release on Monday.
USD / CAD technical levels
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