- USD/CAD gained strong follow-through traction for the fourth consecutive session on Thursday.
- Wednesday’s hawkish FOMC minutes, COVID-19 jitters continued benefitting the safe-haven USD.
- Retreating crude oil prices undermined the loonie and provided an additional boost to the major.
The USD/CAD pair caught some fresh bids during the early European session and shot to the highest level since April 21, around mid-1.2500s in the last hour.
A combination of supporting factors assisted the USD/CAD pair to build on this week’s strong move up and gain positive traction for the fourth consecutive session on Thursday. The US dollar stood tall near three-month tops and remained well supported by indications that the Fed is moving towards tightening its monetary policy as soon as this year. Apart from this, the recent sharp pullback in crude oil prices undermined the commodity-linked loonie and provided an additional boost to the major.
The June FOMC meeting minutes released on Wednesday revealed that policymakers expect conditions to reduce the pace of asset purchases could be met earlier than previously anticipated. Fed officials also agreed that they must be ready to act if inflation or other risks materialize, suggesting that QE tapering discussions could begin in the coming months. The USD bulls seemed rather unaffected by the ongoing decline in the US Treasury bond yields, instead took cues from the prevalent risk-off mood.
Worries about the economic fallout from the spread of the highly contagious Delta variant of the coronavirus continued weighing on investors’ sentiment. This was evident from a sharp fall in the US equity futures, which was seen as another factor that benefitted the safe-haven greenback and acted as a tailwind for the USD/CAD pair.
Meanwhile, oil prices retreated further from the highest intraday level since November 2014 amid worries that the United Arab Emirates (UAE) will unilaterally ramp up its production following a clash with Saudi Arabia. It is worth recalling that the UAE stood against an extension of production curbs until the end of 2022 from the current deadline of April 2022. The uncertainty about how the OPEC+ stalemate will impact the future oil output continued weighing on the black gold.
Apart from this, Thursday’s strong rally could further be attributed to some technical buying on a sustained move beyond the key 1.2500 psychological mark. Given that the USD/CAD pair this week confirmed a near-term breakout through a short-term descending trend-line resistance, the subsequent strength has set the stage for additional gains. Some follow-through buying beyond the 1.2560 horizontal barrier will reaffirm the constructive set-up and allow bulls to reclaim the 1.2600 mark.
Market participants now look forward to the release of the US Initial Weekly Jobless Claims data, due later during the early North American session. This, along with the broader market risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. The US economic docket also features the release of crude oil inventories data by the Energy Information Administration, which might influence oil price dynamics and allow traders to grab some short-term opportunities.