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USD/CAD flirts with session lows, below mid-1.2300s ahead of Canadian/US data

  • USD/CAD witnessed fresh selling on Friday and reversed a major part of the overnight gains.
  • Renewed USD weakness turned out to be a key factor that acted as a headwind for the pair.
  • An uptick in oil prices underpinned the loonie and further contributed to the intraday selling.

The USD/CAD pair remained depressed through the first half of the European session and was last seen hovering near the lower boundary of its daily trading range, below mid-1.2300s.

The pair struggled to capitalize on the previous day's solid bounce of nearly 100 pips from sub-1.2300 levels, or four-month lows, instead met with some fresh supply on the last day of the week. The emergence of fresh selling around the US dollar was seen as a key factor that acted as a headwind for the USD/CAD pair. Apart from this, a modest uptick in crude oil prices underpinned the commodity-linked loonie and contributed to the intraday selling bias.

Reports that China Evergrande made funds available for a bond coupon to a trustee account helped ease concerns about a credit crunch in China's real estate sector. This, along with signs of stability in the equity markets, dented the greenback's relative safe-haven status. That said, elevated US Treasury bond yields should help limit any deeper losses for the USD and lend some support to the USD/CAD pair, warranting caution before placing fresh bearish bets.

In fact, the yield on the benchmark 10-year US government bond held steady near the highest level since May amid prospects for an early policy tightening by the Fed. Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The speculations were reinforced by comments from Fed Governor Christopher Waller, saying that the US central bank may have to act faster if inflation remains too high.

Hence, Friday's key focus will be on a scheduled speech by Fed Chair Jerome Powell, due later during the North American session. Heading into the key event risk, traders might take cues from the release of the flash US PMI prints for October and monthly Canadian Retail Sales data. Apart from this, oil price dynamics and the US bond yields, might provide some impetus to the USD/CAD pair and allow traders to grab some short-term opportunities.

Technical levels to watch

 

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