USD/CAD renews weekly top around 1.3200 on softer oil, risk-aversion ahead of BOC

• USD/CAD takes the bids to print three-day uptrend, pokes two-month high marked the last week.
• Recession woes, hopes of Fed’s aggression join OPEC+ shallow production cut to weigh on oil prices, propel USD/CAD.
• BOC is expected to announce 0.75% rate hike but the Rate Statement will be important.
• Fedspeak, second-tier US/Canada data may also entertain pair traders.

USD/CAD rises for the third consecutive day as it refreshes the weekly high near 1.3190 during Wednesday’s Asian session. In doing so, the Loonie pair cheers firmer yields and a risk-aversion wave to please buyers around the highest levels in two months ahead of the Bank of Canada (BOC) Monetary Policy Meeting.

Downbeat prices of WTI crude oil, Canada’s main export item, also propel the USD/CAD prices as traders brace for the fifth BOC rate hike of 2022.

That said, the WTI crude oil prices drop to the fresh low since late January, down 1.70% near $85.40 by the press time, as recession woes join the firmer US dollar. Also exerting downside pressure on the commodity prices could be the market’s perception of the latest output cut from the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+.

Elsewhere, firmer US data underpinned the hawkish Fedbets and joined the covid-linked pessimism in China, as well as the energy crisis in Europe, to favor the US dollar.

US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Amid these plays, the US 10-year Treasury yields rise to the fresh high since June 15 during the three-day uptrend to 3.35%. Also portraying the risk-aversion is the S&P 500 Futures that drops to the fresh low in seven weeks, down 0.55% intraday around 3,890 at the latest.

Looking forward, the firmer US dollar and softer oil prices, as well as the downbeat risk appetite, could keep the USD/CAD bulls hopeful even as the BOC is expected to lift the benchmark rate by 75 bps to 3.25%. However, hawkish comments from the BOC Rate Statement and softer Fedspeak may allow the Loonie pair to consolidate recent gains.

Also read: BoC Preview: Will BoC take its foot off the pedal?

Technical analysis

A two-month-old resistance line, at 1.3220 by the press time, joins nearly overbought RSI (14) to challenge USD/CAD buyers. The sellers, on the other hand, need a daily closing below the monthly support line, at 1.3050 as we write, to retake control.