USD/CAD hangs near multi-year lows, below 1.2300 mark
- Oversold conditions helped USD/CAD to stall its bearish trend amid a modest USD strength.
- A modest pullback in oil prices undermined the loonie and further extended some support.
- Diverging monetary policy stance should continue to cap any meaningful gains for the pair.
The USD/CAD pair bounced around 20 pips from the lowest level since February 2018, though lacked any follow-through and remained below the 1.2300 mark.
A combination of factors extended some support amid oversold conditions and helped the pair to stall its post-BoC sharp fall from levels beyond mid-1.2600s. A generally softer tone around the equity extended some support to the safe-haven US dollar. Apart from this, a modest pullback in crude oil prices undermined the commodity-linked loonie and helped limit the downside, at least for the time being.
That said, any meaningful recovery still seems elusive amid the divergence in monetary policies adopted by the Bank of Canada and the Federal Reserve. The BoC reduced its weekly asset purchases at the April policy meeting and brought forward the guidance for the first interest rate hike to the second half of 2022. Conversely, the Fed remains firm to maintain the current accommodative monetary policy.
This was evident from a rather muted market reaction to Thursday's better-than-expected US Q1 GDP report. The first estimate revealed that growth in the world's largest economy accelerated by 6.4% annualized pace during the January-March period as against 6.1% expected and 4.3% rise recorded in the previous quarter. The data, however, did little to impress the USD bulls or lend any support to the USD/CAD pair.
Moving ahead, market participants now look forward to the release of the Canadian monthly GDP report for a fresh impetus. The US economic docket features the release of March Personal Income/Spending data, Core PCE Price Index and revised Michigan Consumer Sentiment Index for April. This, along with the US bond yields, might influence the USD price dynamics and produce some short-term opportunities around the USD/CAD pair.
Technical levels to watch