The USD/CAD pair is continuing its strong weekly uptrend and gaining traction for the fourth consecutive day on Friday. The momentum remains uninterrupted through the early part of the European session and is pushing spot prices beyond the 1.3500 psychological mark, which is the highest level since January 6. The underlying strength of the pair can be attributed to a combination of factors, including declining oil prices, sustained USD buying, and technical buying.
Oil prices have been on a steady decline this week, hitting a one-week low. This is due to investors worrying that rapidly rising borrowing costs will dampen economic growth and dent fuel demand. This, in turn, weighs on the black liquid, which is seen undermining the commodity-linked Loonie.
In addition, the US Dollar is also receiving support from the markets expecting further policy tightening by the Federal Reserve. The markets are convinced that the US central bank will stick to its hawkish stance and have been pricing in at least a 25bps lift-off at the next two FOMC meetings in March and May. This has pushed the yield on the benchmark 10-year US government bond to its highest level since late December and has boosted the USD. Furthermore, a fresh leg down in the global equity markets, amid looming recession risks, is providing further support to the safe-haven buck.
The USD/CAD pair’s rally could also be attributed to some technical buying following the overnight breakout through a two-month-old descending channel. A subsequent move above the 1.3470-1.3475 region and the 1.3500 mark could be seen as a fresh trigger for bullish traders, which might have already set the stage for further appreciation.
From a technical perspective, the immediate support is seen at 1.3470/75, below which the pair could slip back to 1.3450 and the 1.3400 mark. On the upside, any further gains beyond the 1.3500 mark could be seen as a fresh trigger for bullish traders and might be followed by an extension of the momentum towards the 1.3550-60 region. This is followed by the 1.3600 round-figure mark, which if cleared could set the stage for a move towards the 1.3650-55 region.
Overall, the USD/CAD pair remains well supported by a combination of factors and a sustained move beyond the 1.3500 mark might have already set the stage for further gains. However, any meaningful up-move is likely to remain capped near the 1.3650-55 region, at least for the time being.
