USD/CAD is pushing against the near-term top at 1.3750 area

• The US dollar hits one-week high at 1.3780.
• Lower oil prices an hawkish Fed hopes are undermining the CAD.
• USD/CAD seen rallying to 1.40 before dropping to 1.32 – CIBC.

The US dollar’s recovery from session lows near 1.3700 has managed to reach one-week highs at 1.3780 during Monday’s US session. The pair, however, has failed to consolidate above the top of last week’s horizontal range, at 1.3750/60.

Lower oil prices and hopes of a hawkish Fed hit the CAD

Crude prices have posted a significant retreat on Monday, which has been weighing on the oil-sensitive loonie. The US benchmark WTI has dropped to prices near $90.50 after having traded above $93, with Brent oil depreciating nearly 3% on the day to levels below $96. 

On the other end, the US dollar remains bid across the board, with the market pricing in another aggressive rate hike by the Federal Reserve following this week’s monetary policy meeting.

Last Friday’s upbeat US employment report has boosted confidence on the strength of US economy, in the face of a global economic downtrend, which has paved the way for the Central Bank to maintain its hawkish stance.

USD/CAD might reach 1.40 before diving to 1.32 next year – CIBC

The FX Analysis Team at CIBC sees the pair aiming to 1.40 before pulling back in 2023: “The Fed’s hawkish announcement in late September and general risk aversion has sent the USD on a broadly stronger trajectory, and the loonie has depreciated as a result. There's likely more of the same to come, given a gap opening up in where policy rates will peak, and soft global growth favouring the USD and capping any upside for commodities (…) A run to 1.40 is quite possible, and a rebound at year end should still see CAD in 1.38 territory (…) In 2023, we see scope for a broad softening in the USD as the Fed pauses hiking below current market expectations, which will see CAD end the year stronger, with USD/CAD at 1.32.”

Technical levels to watch