USD/CAD dives below 1.3720 with the greenback losing steam

• The US dollar loses steam and retreats below 1.3720.
• A brighter market mood is weighing on the USD.
• USD/CAD expected to peak at 1.40 and dive to 1.32 in 2023 – CIBC.

The US dollar seems to have lost momentum on Tuesday’s North American session and is depreciating against its main rivals. The USD/CAD has dropped more than 100 pips from session highs highs to hit intra-day lows at 1.3717 so far.

A brighter market mood weighs on the USD

Investors’ sentiment seems to have improved after a negative opening in the US, which is pushing the US dollar lower across the board.

The main US stock indexes have jumped into the green, with the Dow Jones 1.22% higher while the S&P 500 and the Nasdaq advance 0.60% and 0.37% respectively. Furthermore US treasury bonds, which surged at market opening times, are retreating, with the 10-year yield retreating below 3.90% after having reached 4.00% earlier today.

On the macroeconomic front, in absence of key macroeconomic data, investors are focusing on the US inflation report, due on Thursday. These figures are expected to offer additional reasons for the Fed to keep rising borrowing costs at an aggressive pace which is likely to offer a fresh impulse to the greenback.

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

On a wider perspective, The FX Analysis Team at CIBC sees the pair aiming to 1.40 before pulling back in 2023: “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