- A dramatic fall in oil prices undermined the loonie and provided a strong boost to USD/CAD.
- Collapsing US bond yields, Fed rate cut speculations weighed on the USD and capped gains.
- Extremely overbought conditions might prompt some profit-taking amid bouncing oil prices.
The USD/CAD pair trimmed a part of its early strong gains and retreated around 150 pips from to 34-months, albeit has just managed to hold above the 1.3600 mark.
The pair opened with a bullish gap and subsequently surged to its highest level since early May 2017 – levels just above mid-1.3700s – on the first day of a new trading week amid crashing oil prices.
Bulls opt to take some profits off the table
In fact, oil prices nosedived more than 30% on Monday and recorded the biggest single-day rout since the first Gulf was in reaction to a possible full-blown price war between Saudi Arabia and Russia.
Saudi Arabia slashed its official selling prices and made plans to ramp up crude output next month after Russia refrained from making a further steep output cut proposed by the OPEC+ alliance.
The selloff in the oil markets weighed heavily on the commodity-linked currency – loonie – and was seen as one of the key factors behind the pair’s strong move during the early part of Monday’s trading action.
This comes on the back of growing worries about the uncontained spread of the deadly coronavirus and rattled the global financial markets. The same was evident from a massive selloff in the equity markets.
The global flight to safety, along with firming market expectations that the Fed will cut interest rates on March 18 aggravated the recent plunge in the US Treasury bond yields and undermined the US dollar.
The bearish pressure surrounding the greenback remained unabated, which eventually kept a lid on any further gains, rather prompted some long-unwinding trade amid extremely over-stretched conditions.
As the dust settled, oil prices managed to rebound from the early swing lows, which could possibly lead to a fresh wave of profit-taking amid absent relevant market-moving economic releases on Monday.
Technical levels to watch
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