USD/CAD climbs to multi-week highs around 1.3040s on a buoyant US dollar

• USD/CAD reaches a fresh six-week high at 1.3048 on falling crude oil prices and broad US dollar strength.
• Last week’s Fed hawkish commentary weighed on market mood, with traders preparing for Fed Chair Jerome Powell’s speech.
• Money market futures odds of a 75 bps rate hike by the Fed lie at 82.8%.

The USD/CAD broke to fresh two-month highs above the 1.3000 figure on risk aversion, crude oil prices falling, and broad US dollar strength across the board, as traders brace for US Federal Reserve Economic Symposium at Jackson hole. Amongst those and additional factors, the USD/CAD is trading at 1.3038, up by 0.37% at the time of writing.

Wall Street extended its losses as Fed’s hawkish rhetoric weighed on traders’ mood. US Treasury yields jumped between three-to-six basis points, while the US Dollar Index, a  gauge of the buck’s value vs. a basket of currencies, broke the 109.000 barrier up 0.84%.

USD/CAD climbs on buoyant US dollar due to Fed’s hawkish commentary

During the last week, Fed officials reiterated the need to bring inflation down, led by San Francisco Fed’s Mary Daly, who said that it was premature to “declare victory” on inflation while adding that she foresees a 50 or 75 bps for the September meeting. Echoing her comments was the uber-hawk St. Louis Fed President James Bullard, saying he’s leaning towards 75 bps and emphasized the need to get to the 3.75%-4% range by the year’s end. In his view, he added that it will take 18 months to get back prices back to the Fed’s 2% target.

In the meantime, money market future STIRs portray that the Fed will hike a minimum 50 bps rate hike for September, while odds for a 75 bps increase lie at 82.8%.

On the Canada front, an absent Canadian docket left investors adrift to market sentiment and oil prices. Meanwhile, the oil price is staging a comeback, exchanging hands at $89.49 PB, but remains below its opening price by 0.39% after hitting a daily low of $86.29.

Even though expectations are that the Bank of Canada will continue to tighten monetary policy, it will get slightly behind the Federal Reserve, with forecasts of a 50 bps hike which would lift rates to 3%. Aside from this, according to Reuters, speculators have raised their bullish bets on the Loonie to its highest level since July 2021, as shown by US CFTC data released on August 19, with long positions increasing from 21 223 to 26,867.

What to watch

The Canadian economic docket will feature Average Weekly Earnings by Thursday. Meanwhile, by Friday, the US calendar will reveal S&P Global PMIs, Fed speaking led by Minnesota’s Neil Kashkari, alongside inflation figures, ahead of Jerome Powell’s speech at Jackson Hole.

USD/CAD Key Technical Levels