Over a week, the high reached on Thursday was reversed intraday for USD/CAD. Despite a slight USD decline, rising oil prices support the Canadian dollar and put pressure on it.
Positive US macroeconomic data and aggressive Fed predictions should provide support. In the early North American session, the USD/CAD pair declines from a one-and-a-half-week high reached earlier this Thursday and hits a new daily low. Several factors pressure the team as it trades slightly below the 1.2900 level.
The almost six-month low reached on Tuesday for crude oil prices is being recouped, which supports the commodity-linked loonie and works against the USD/CAD pair. This prompts some selling at higher levels and adds to the intraday decline, coupled with a slight US dollar reversal from a recent monthly top.
Concerns about how a worldwide economic slump will affect fuel consumption are lessened by the Energy Information Administration’s (EIA) overnight positive report, which shows a steeper-than-expected fall in US oil stockpiles. The black liquid is also supported by anticipation that the European Union’s embargoes on Russian oil imports would constrain supplies.
On the other hand, despite declining US Treasury bond rates, the USD cannot benefit from its tiny intraday increase. In addition, a moderate intraday rebound in the stock markets triggers profit-taking towards the safe-haven dollar. Nevertheless, encouraging US macroeconomic data assist keep the dollar and the USD/CAD pair from falling too much.
In actuality, the August reading of the Philly Fed Manufacturing Index was 6.2, contrary to consensus expectations for recovery to -5 from the -12.3 published in the preceding month. Separately, the US Initial Jobless Claims surprisingly dropped from the previous week’s downwardly revised number of 252K to 250K for August 12. (262K reported previously).
This comes after the FOMC minutes said that unless inflation significantly declined and the Fed’s hawkish forecasts were reinforced, officials would not contemplate delaying interest rate increases. Market investors seem to be confident that the Fed will continue to tighten policy, which supports the possibility of some USD dip-buying emerging.
Given the actual context, the USD/CAD pair will encounter the least resistance on the way up, indicating that any future decline may still be seen as a buying opportunity. Therefore, it would be wise to hold off on declaring a near-term peak and preparing for any significant collapse until there has been considerable follow-through selling.