- USD/CAD struggles around the 1.2300 level amid various factors.
- The role of the USD as a safe haven is questioned despite a rate hike expectation.
- Canadian dollar benefited from the better-than-expected CPI data and may keep pressure over the USD.
On Wednesday, the USD/CAD price analysis struggled to benefit from the modest rebound from the previous day but instead encountered fresh supply and came under pressure from various factors.
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Despite moderate expectations of a Fed rate hike, the risk sentiment has become an obstacle to the US dollar’s role as a safe haven. This week, several dismal US macro releases – industrial production and housing market data – indicated a slowdown in economic activity and dampened market expectations of an early Fed tightening.
Additionally, Fed chair Randal Quarles said a rate hike would be premature because inflation will likely fall over the next year. Nonetheless, Quarles reiterated that the Fed should cut its bond-buying program, even though the dollar bulls failed to impress.
In contrast, the Canadian dollar benefited from unexpectedly high domestic consumer inflation, increasing pressure on the largest currency. According to Statistics Canada, the general consumer price index rose 4.4% in September, up from previous projections of 4.3% and 4.3%.
Furthermore, the Bank of Canada’s Core Consumer Price Index (BoC) – which excludes volatile food and energy prices – rose 3.7% over the same period, beating the consensus of 3.6%. Bullish oil prices also helped commodities, as US crude oil inventories declined unexpectedly. In a report released by the US Energy Information Administration (EIA), commercial crude inventories declined by 0.4 million barrels for the week ending October 15, against expectations for an increase of 1.8 million barrels.
Despite receiving no further selling, the pair eventually settled near the daily lows and briefly dropped below 1.2300 during Thursday’s Asian session. Investors’ appetites for riskier assets have been dampened by the credit crunch in China’s real estate market, which has bolstered the safe US dollar.
The heavily indebted developer China Evergrande said late Wednesday that it had sold its stake in the subsidiary for $2.6 billion and made no other progress on sales. As a result, there are fears that the troubled real estate giant may officially default over the weekend after a 30-day grace period for a coupon payment in US dollars. Furthermore, a slight decline in oil prices caused the pair to rebound more than 40 pips from the 1.2290-85 range.
In addition to the Philadelphia Fed Manufacturing Index and the usual weekly jobless claims report, market participants eagerly await the report on the US economy.
Additionally, the Fed’s Chris Waller’s upcoming speech and US bond yields could impact the dollar in North America later in the morning. Finally, ADP employment data and a move in oil prices will allow traders to take advantage of some near-term opportunities around the major currencies.
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USD/CAD price technical analysis: Upside barred by 20-SMA
The USD/CAD managed to pop up above the 1.2300 mark after a brief dip. However, the price remains softer as the bullish attempts remain capped by the 20-period SMA on the 4-hour chart. Any move beyond the 20-period SMA can look to test the 50-period SMA around 1.2400 handle. On the flip side, 1.2290 may provide support ahead of 1.2220. Volume is not in favor of bulls now, but bears have taken a pause for now.
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Saqib Iqbal
