The USDCAD pair looks set to remain in a bullish trend in the near term. The start of the new week saw the currency pair attract more buying, with a peak at the European session showing the pair rising to a fresh daily high. This positive momentum looks set to continue, as the fundamental backdrop is providing support for bullish traders. With a combination of several factors providing a positive backdrop for the pair, it appears that the USDCAD pair is well-positioned to remain in a bullish trend in the near term.
As the new week began, the crude oil price saw a fresh supply, which unfortunately affected the commodity-linked Canadian dollar (Loonie). This caused the currency to weaken in comparison to its US counterpart, with the USD/CAD pair receiving support. It’s easy to understand why this happened; worries about rapidly rising borrowing costs dampening economic growth and fuel demand have overshadowed any prospects of reducing exports from Russia.
Despite this setback, there is some encouragement that oil prices are recovering from their nearly three-week low last Thursday. This is not enough for them to build on two days’ worth of recovery. With all things considered, it appears as though geopolitical tensions continue to weigh heavily on markets and impact commodities like crude oil in particular.
Bank of Canada Policy Cycle
The Bank of Canada (BoC) is facing a tough decision as it weighs the implications of the recently released softer Canadian consumer inflation figures. This has led to bets that the BoC may pause its policy-tightening cycle, putting downward pressure on the Canadian dollar. At the same time, the Federal Reserve is expected to maintain its hawkish stance in the face of stubbornly high inflation, keeping the US dollar near a multi-week high. The strong US PCE data released on Friday further reinforced the likelihood of further policy tightening by the Fed.
The BoC needs to carefully consider the implications of both inflation and economic growth before making a decision. It is a difficult balancing act, as the BoC must weigh the impact of higher inflation and slower economic growth. Ultimately, the BoC will need to make a decision that is in the best interests of the Canadian economy.
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