USD/CAD hangs near daily low on softer USD, downside seems limited amid bearish oil prices – by hareshmenghani USDCAD Bonds Fed Recession Currencies
Retreating US bond yields and the risk-on impulse weighs on the safe-haven greenback.The USD/CAD pair
struggles to capitalize on Friday's strong intraday rally of nearly 200 pips from the 1.3700 mark and meets with a fresh supply on the first day of a new week. The pair remains depressed through the first half of the European session and is currently placed near the daily low, just above the 1.3700 round figure.
A combination of factors prompts fresh selling around the US dollar, which, in turn, is seen exerting some downward pressure on the USD/CAD pair. Reports that the UK government is preparing for a major U-turn on planned tax cuts boost investors' confidence. This, along with a modest pullback in the US Treasury bond yields, undermines the safe-haven greenback. That said, hawkishexpectations should act as a tailwind for the US bond yields and help limit the downside for the buck.
In fact, the markets seem convinced that the US central bank will stick to its aggressive rate hiking cycle to combat stubbornly high inflation, which remains elevated near a multi-decade high in September. The current market pricing indicates a nearly 100% chance of another supersized 75 bps rate increase at the next FOMC policy meeting in November. Apart from this, a fresh leg down incould undermine the commodity-linked loonie and should limit losses for the USD/CAD pair.
Investors remain worried that a deeper global economic downturn and the imposition of fresh COVID-related lockdowns in China will hurt fuel demand. This forced OPEC to lower its global oil demand growth estimates for both 2022 and 2023 last week, which continues to weigh on the black liquid. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair and warrants some caution for aggressive bearish traders, or positioning for a further downfall.
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