USD/CAD barely unchanged around 1.2510s amid improved market mood, soft US dollar

• The USD/CAD erases Monday’s gains and trades near its close.
• A risk-on market mood weighed on the USD, thus slightly boosting the CAD.
• The Fed and BoC to hike rates aggressively in 2022, as shown by money market futures.
• USD/CAD Price Forecast: The pair is downward biased.

The USD/CAD is barely flat during the North American session after a volatile Monday’s session, which pushed the pair towards a weekly high at 1.2592, retreating afterward towards the 1.2510 area. At the time of writing, the USD/CAD is trading at 1.2514.

The geopolitical situation in Ukraine progressed, lifting the market mood

On Tuesday, the market sentiment improved as talks between Russia and Ukraine have been constructive, said the Russian negotiator Medisnky. Additionally, reports emerged that a Putin – Zelenskiy meeting could be possible. At the same time, the Ukraine negotiator noted that Ukraine’s neutral status would mean that there would not be any foreign military bases in the country.

Meanwhile, Philadelphia Fed President Patrick Harker crossed the wires. Harker noted that inflation in the US would be around 4% in 2022 and added that the US central bank “misjudged” the effect of fiscal expenditure on inflation. He added to the list of policymakers that do not rule out a 50-bps increase to the Federal Funds Rate. Harker commented that the QT could add the equivalent of two quarter-point rate increases to Fed tightening.

Money market futures expect six more rate hikes by the Federal Reserve in 2022. In fact, some market players expect two 50 bps increases in the May and June meetings. Meanwhile, regarding the Bank of Canada, money markets are pricing in “between 200 and 225 basis points in the six remaining interest rate announcements in 2022, up from about 140 basis points before a blockbuster employment report this month,” according to Reuters.

USD/CAD Price Forecast: Technical outlook

The USD/CAD downfall appears to have bottomed, though the Relative Strength Index (RSI), at 38.05, almost horizontal, never reached oversold conditions, meaning that the USD/CAD might consolidate before resuming downwards.

That said, and once the daily moving averages (DMAs) reside above the spot price, the USD/CAD path of least resistance is downwards. The USD/CAD first support would be 1.2500. Once cleared, the next demand zone to test would be March 25, 1.2465 daily low, followed by November 10, 2021, daily low at 1.2386, and then October 2021 lows at 1.2288.