USD/CAD tanks towards 1.3620s after hitting a YTD high of 1.3832 on upbeat sentiment

• USD/CAD nosedives below 1.3700, eyeing a break below 1.3600 as the US dollar falls.
• US Pending Home Sales for August disappointed investors, reflecting the Fed’s policy stance.
• Fed’s Bostic and Evans coincided that further rate hikes are needed, and both expected rates to peak around 4.25% by the end of 2022.

The USD/CAD plunges in the North American session after hitting a two-decade high at 1.3832 as the US dollar weakened, spurred by falling US bond yields, while US equities got a respite after the last six-day sell-off, which kept stocks nearby 2022 YTD low levels. Factors like the GBP’s currency crisis, alongside Europe’s energy woes, and hawkish Fed rhetoric, were the main reasons driving the markets.

Therefore, the USD/CAD is trading at 1.3622, well below its opening price, after hitting a daily high of 1.3832, down 0.74%.

US economic data revealed during the day flashed the impact of the Fed’s policy, as the National Association of Realtors revealed that Pending Home Sales for August. The figures showed a contraction f 2%, the lowest since 2011 and lower than 1.5% estimated by economists. According to Lawrence Yun, NAR’s chief economist, higher rates are weighing on the housing market, and she added, “Only when inflation calms down will we see mortgage rates begin to steady.”

In the meantime, Fed speakers led by Atlanta’s Fed Bostic said that inflation is “too high” and commented that his base case for the November meeting is to hike by 75 bps on December 50. At the time of typing, the Chicago Fed President, Charles Evans, said that the Fed is raising rates expeditiously to tackle very high and persistent inflation.

Evans added that he sees the Fed policy rate peaking at around 4.50-4.75%, while by the year’s end estimates, it would end at around 4.25-4.75%.

The lack of Canadian economic data left the Loonie adrift to US dollar dynamics and rising commodity prices. US crude oil prices were up 1.8% at $79,87 per barrel as production cuts spurred by Hurricane Ian, bolstering the Canadian dollar.

Elsewhere, the US Dollar Index, a gauge of the buck’s value vs. a basket of currencies, is plummeting sharply, more than 1.30%, down at 112.64, refreshing weekly lows.

USD/CAD Price Analysis: Technical outlook

Given the fundamental backdrop that the Fed might raise rates beyond what the Bank of Canada would do, it will likely keep the Loonie on the back foot. Therefore, the USD/CAD fall towards current exchange rates and beyond, probably the 38.2% Fibonacci retracement at 1.3500, would offer USD bulls opportunities to engage on the USD/CAD way towards a re-test of the YTD highs.

USD/CAD Key Technical Levels