USD/CAD refreshes 26-month top near 1.3485 as Fed propels USD, oil weakens

• USD/CAD prints three-day uptrend as it rises to the fresh high since July 2020.
• US Dollar cheers risk-off mood, Fed’s rate hike to favor the pair buyers.
• WTI crude oil drops towards the short-term key support on demand-supply fears.
• Qualitative catalysts will be important for fresh impulse.

USD/CAD takes the bids to refresh the multi-day high around 1.3485, up for the third consecutive day, as bulls take a breather during Thursday’s Asian session. In doing so, the Loonie pair justifies a firmer US dollar and the softer prices of Canada’s key export item WTI crude oil.

US Dollar Index (DXY) renews a two-decade top around 111.50 as hawkish Fed actions joined the recession woes. On the other hand, the WTI crude oil prices bear the burden of US President Joe Biden’s push for energy projects and the fears of economic slowdown due to the rate increases.

Fed matched the market’s expectations of announcing 75 basis points (bps) rate hike. The Fed’s action was the third one in a line of such kind, as it wants to tame inflation fears even at the cost of a “sustained period of below-trend growth” and a softening in the labor market. Fed Chairman Jerome Powell also signaled that the way to tame inflation isn’t painless ahead. While the Fed matched market forecasts, the economic fears surrounding the rate hikes and expectations of another 0.75% increase in November kept the US Dollar on the front foot, despite marking heavy volatility around the announcements.

Elsewhere, Russian President Vladimir Putin’s announcement to mobilize partial troops also reignited the Ukraine-linked geopolitical fears and the supply-crunch fears, which offered an initial run-up to oil prices before the latest downside. Recently, Ukrainian President Volodymyr Zelensky said Ukrainian neutrality is out of the question and he rules out that a settlement can happen on a different basis than the Ukrainian peace formula.

Amid these plays, Wall Street ended the day on a negative tone while the US Treasury yields also dropped amid the market’s rush for risk safety. It’s worth noting that the S&P 500 Futures print 0.50% losses at the latest.

Moving on, USD/CAD traders should pay attention to the second-tier US data and the risks emanating from the geopolitical headlines for fresh impulse.

Technical analysis

USD/CAD stays on the way to June 2020 peak near 1.31715 unless declining back below the September 2020 top near 1.3420.