- USD/CAD is struggling to capitalize on a good rebound from more than a week’s lows.
- The risk-on urge weighs heavily on the safe-haven burden, acting as a headwind.
- Bearish oil prices should undermine Looney and help contain any meaningful declines.
Momentum fades around 1.3780, but the USD/CAD pair is showing a good recovery from the week-and-a-half low touched on Tuesday. The spot price continues to be at the mercy of USD price dynamics as he retreats to the 1.3700 mark early in the North American session.
The general risk-on mood cannot help safe-haven bucks capitalize on small gains during the day, as demonstrated by a strong follow-through rally in the stock market. Acting as a headwind for the USD/CAD pair, the combination of factors should caution bearish traders before positioning for deeper losses.
The outlook for more aggressive policy tightening by the Federal Reserve may continue to support the USD, and some caution should be taken before placing bearish bets on the USD/CAD pair. In fact, current market prices indicate an almost 100% chance of a massive 75bps Fed rate hike in November, four in a row.
In addition, concerns that a deepening global economic downturn could reduce fuel demand are weighing on oil prices. This could undermine commodity-related loonies and further contribute to capping the USD/CAD drop. Therefore, it is wise to wait for a strong follow-through selling before confirming that the spot price has plateaued.
Market participants are now looking for some stimulus in industrial production data and capacity utilization. This, along with US bond yields and broader risk sentiment, will boost US dollar demand. While the focus will be on Wednesday’s Canadian CPI, traders will get more clues from oil price dynamics.
