USD/CAD drops below 1.2940 as DXY extends losses, Jackson Hole hogs limelight

• USD/CAD is declining to near two-day low at 1.2933 as DXY faces selling pressure.
• The odds of a slowdown in the pace of hiking interest rates by the Fed are accelerating.
• Oil prices are advancing firmly after the oil cartel announced production cuts.

The USD/CAD pair has surrendered Wednesday’s low at 1.2948 and is expected to drop to near two-day’s low at 1.2933. The asset is displaying signs of bearish reversal as the US dollar index (DXY) has extended its losses after failing to cross the critical hurdle of 108.80 at open. At the press time, the DXY has slipped to near 108.26 and is expected to slip further to near the round-level support at 108.00.

The mighty DXY is attracting a lot of offers as odds of a less-hawkish commentary by the Federal Reserve (Fed) chair Jerome Powell at the Jackson Hole Economic Symposium are accelerating. After a steep contraction in the US economic activities and a slump in overall demand indicated by weak US Durable Goods Orders, the street believes that the Fed should scale down the pace of hiking interest rates.

Fed policymakers have evidence of exhaustion in the price pressures and also the supply chain risks are trimming sharply. Therefore, the Fed has the luxury of scaling down its hawkish tone slightly till the time the economic activities could get to a restoration level.

On the oil front, oil prices are advancing dramatically as the oil cartel is discussing production cuts to scale up prices again. For the oil cartel, lower oil prices are an imbalance as it generates lower revenues for the oil-producing countries. Therefore, a decline in the overall oil supply will accelerate prices further. It is worth noting that Canada is a leading exporter of oil to the US. And, higher oil prices will bring higher revenues to Canada and will strengthen its fiscal balance sheet.