USD/CAD hits fresh lows at 1.2666 and rebounds back above 1.2700

• US data below expectations, on Wednesday ADP and FOMC minutes.
• DXY turns positive again, holds above 96.00.
• USD/CAD holds a bearish tone but again rejected from under 1.2700.

The USD/CAD pair bottomed at 1.2666 and rebounded back above 1.2700, as the US dollar jumps from instance weakness to strength in a few minutes. Higher US yields continue to be a key driver of USD strength. At the same time, higher equity prices limit gains.

US still strong, data below expectations

The greenback remains with momentum amid higher US yields that reached again multi-month highs. Economic numbers from the US came in below expectations on Tuesday. The ISM Manufacturing Index came in at 58.7 in December below the 60.2 of markets consensus and under the 61.1 of the previous month. On Wednesday, the ADP employment report is due and later the Federal Reserve will release the minutes of the last FOMC meeting.

In Canada, economic figures showed the Industrial Product Price Index rose 0.8% in November, as expected; while the Raw Material Price Index decline unexpectedly 1%. A different report showed the Markit Manufacturing PMI dropped in December to 56.5 from 57.2, and against the 57.5 of market consensus. The numbers had o significant impact on the loonie.

The USD/CAD continues to move with a bearish bias, but again it was rejected from under 1.2700. A recovery above 1.2770 should negate the negative tone. A consolidation in the short term below 1.2680 should expose the recent low.

Analysts at Brown Brother Harriman point out that the Canadian dollar was the only major currency to post gains against the dollar in 2021, “but we may be in for a period of underperformance to start off 2022.  For USD/CAD, a break above 1.2835 is needed to set up a test of the December high near 1.2965.”

Technical levels