USD/CAD remains depressed below mid-1.3100s, flirts with weekly low on softer USD

• USD/CAD drifts lower for the fourth straight day and drops to a fresh weekly low on Thursday.
• A modest intraday USD downtick turns out to be a key factor exerting pressure on the major.
• Subdued Crude Oil prices do little to influence the Loonie or provide any impetus to the pair.

The USD/CAD pair continues losing ground for the fourth successive day on Thursday and drops to a fresh weekly low during the early part of the European session. Spot prices currently trade just below mid-1.3100s, down less than 0.20% for the day, and remain well within the striking distance of the YTD trough touched last week.

The US Dollar (USD) fails to capitalize on its recovery from the lowest level since April 2022 touched on Tuesday and comes under some renewed selling pressure, which, in turn, is seen as a key factor dragging the USD/CAD pair lower. Market participants continue to price out the possibility of any further interest rate hikes by the Federal Reserve (Fed) after the widely anticipated 25 bps lift-off in July. This, along with the underlying bullish sentiment around the global equity markets, acts as a headwind for the safe-haven Greenback.

That said, concerns over slowing growth in China, the worsening US-China ties and geopolitical risks keep a lid on any further optimism. Furthermore, investors remain sceptic if the US central bank will commit to a more dovish policy stance or stick to its forecast for a 50 bps lift-off by the end of this year. This leads to a modest recovery in the US Treasury bond yields, which assists the USD to trim a part of its intraday losses and should limit losses for the USD/CAD pair, warranting caution before positioning for any further losses.

Meanwhile, Crude Oil prices struggle to gain any meaningful traction and remain below a technically significant 200-day Simple Moving Average (SMA) amid worries that a global economic downturn will dent fuel demand. Apart from this, the lower-than-expected drop in US crude inventories caps the upside for the black liquid. This could undermine the commodity-linked Loonie and lend some support to the USD/CAD pair, making it prudent to wait for acceptance below the 1.3100 mark before placing fresh bearish bets.

Market participants now look to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales data. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Traders will further take cues from Oil price dynamics to grab short-term opportunities in the absence of any relevant macro data from Canada.

Technical levels to watch