- USD/CAD reverses early decline to two-week low and draws support from a combination of factors.
- Retreating oil prices are weakening the Loonie and acting as a tailwind for the pair amid a bullish dollar.
- Falling US bond yields may limit the dollar’s gains and further appreciation of the pair.
The USD/CAD pair is drawing minor declines near the 1.3925 area, the two-week low hit earlier on Monday, and climbing to a fresh intraday high in the first half of the European session. The intraday rally is due to a combination of factors that are pushing spot prices to the 1.3975 area over the past hour.
Oil prices are starting the fresh week on a weaker note and for now they seem to have broken their two-day losing streak and reached their highest level in two weeks on Friday. This in turn weakens the commodity-linked Loonie, which, along with the underlying bullish sentiment around the US Dollar (USD), acts as a tailwind for the USD/CAD pair.
The USD Index (DXY), which tracks the dollar against a basket of currencies, is showing no further selling after initial reaction to the nomination of Scott Bessent as U.S. Treasury Secretary amid bets on a less dovish Federal Reserve (Fed). This turns out to be another factor pushing the USD/CAD pair higher, although the upside potential seems constrained.
Investors remain concerned about geopolitical risks arising from the Russia-Ukraine war and ongoing conflicts in the Middle East, which could potentially impact oil supplies. Moreover, rising fuel demand in China and India – the world’s largest and third-largest importers respectively – should limit any significant declines in oil prices.
Meanwhile, Bessent’s conservative views on fiscal policy are causing U.S. Treasury yields to plummet. This could stop USD bulls from making aggressive bets and prevent further gains in the USD/CAD pair. Therefore, it may be prudent to wait for further powerful buying before confirming that spot prices have bottomed out.
