- Improved risk sentiment continues to press the US dollar.
- COVID risks in China may pour water on the optimism.
- Rising oil prices may support the Canadian dollar.
In the European session, the USD/CAD price shows sideways momentum because investors are hesitant to increase positions before the long weekend begins. As global markets hesitate about inflation forecasts for 2023, the Canadian dollar has weak momentum around 1.3550.
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Investors’ heightened risk appetite prevents risk-averse currencies from capitalizing on the heightened appetite. Investors were encouraged by the rise in US stocks, which resulted in a stronger recovery for the S&P 500.
The S&P500 futures held Thursday’s gains early Friday but failed to extend their gains. In 2023, CY investors are avoiding spending due to increased volatility.
In a bid to continue its rise past 103.70, the US Dollar Index (DXY) has been trying to recover from 103.50. Since Monday, the dollar index has been fluctuating between 103.50 and 104.60. The 10-year US Treasury yield is supported by market caution. US Treasury yields remain above 3.83%.
A surge in jobless claims from the US Department of Labor (DoL) put selling pressure on the US dollar index on Thursday. The economic data released for the week ended December 23 was 225k, up from 216k the week before.
A rise in interest rates by the Federal Reserve (Fed) has forced companies to put off hiring. The Federal Reserve’s extremely tight monetary policy is expected to continue as businesses halt job creation due to dismal economic growth. As a result, unemployment claims increased.
As the number of infections increases in China, the Covid-19 situation becomes more vulnerable. Further, infected people are dying at an alarming rate, making medical facilities unable to treat everyone. To protect themselves from the pandemic, many countries require negative Covid arrival reports from China.
The market is torn between supporting oil prices amid optimism about China’s economy reopening and considering short-term supply chain disruptions. Oil prices have recovered from a near $77.00 drop, but they remain unable to breach the critical $80.00 level. It is worth noting that Canada is the United States’ largest oil exporter, and higher oil prices may benefit the Canadian dollar.
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USD/CAD price technical analysis: Bears eying 1.3500
The USD/CAD price is around the key demand zone near 1.3540. Meanwhile, the 200-period SMA on the 4-hour chart may also provide support below the demand zone. Since the price has dipped below the 20-period SMA, the bears will likely prevail and aim for the 1.3500 handle.
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Saqib Iqbal
