- USD / CAD closed below 1.2580 on Tuesday amid weakness in the dollar.
- This could open the door to more inconvenience in the foreseeable future.
USD / CAD hit a new cycle low on Tuesday as oil continued to rally and print higher and the US dollar melted. This was so despite the feeling of a faster decline in quantitative easing and a faster pace of interest rate hikes by the Federal Reserve. As of this writing, USD / CAD is trading at 1.2570 and consolidating above the overnight low of 1.2567.
The Fed to tackle inflation
Investors were reassured that the Fed will tackle inflation, which has led to an overnight rebound in equities and the recent downtrend reversal. Fed Chairman Jerome Powell explained in testimony that the Fed is prepared to tighten monetary policy to maintain price stability.
Powell commented, “If we find that inflation persists at higher rates than expected, we will raise interest rates… we will use our tools to recover inflation.
ANZ Bank analysts explained that the president “expects the pressures on the supply side to ease somewhat, but said if that didn’t happen there was a risk. inflation becomes more entrenched and the Fed should then react. He also said he expects the economic impact of the Omicron variant to be short-lived. ”
It’s a common theme among banks that is starting to exceed demand for the greenback. Investors are inclined to turn to riskier assets and the appearance of inflation is also a plus for the commodities sector. Commodities tend to perform well in the face of inflation for which the loonie trades as a proxy. Oil, for example, is skyrocketing for all of the reasons discussed here.
The National Bank of Canada said in a note today: “The Bank of Canada’s commodity price index for 26 commodities produced in our country and sold in world markets hits a new high at the start of the first quarter 2022 when expressed in Canadian dollars. It’s good for the trade balance, profits, job creation and the Canadian dollar. ”
Overall, “Rising commodity prices, a current account surplus, a strong labor market and positive interest rate spreads argue in favor of an appreciation of the Canadian dollar,” analysts added. form the bank.
The fundamentals join the following technical perspectives:
USD / CAD technical analysis
The price closed below the neck line of the head and shoulders formation. A remainder of the old support between here and 1.2650 (61.8% Fibonacci retracement area) should hold and lead to a further downside for the days to come, placing 1.2490 on the card.