The Canadian currency has not capitalized on the rising oil price and Bank of Canada’s hawkish stance due a military conflict in Eastern Europe. Its impact on sentiment
Russia-Ukraine crisis dominates traders psychology, driving safe-haven market demand and limiting riskier currencies’ appeal
USD/CAD is still biased in favor of the upside, even if geopolitical conditions worsen. For the pair, the technical picture is also positive
In recent weeks, traders have been dominated by the ongoing conflict in Ukraine. This has had a dominating effect on their psychology, driving financial market volatility and driving down sentiment. Oil Its highest level in over a decade. The theory is that the Canadian dollar should gain from this. Increasing crude oil prices It is a major export for Canada, so it makes sense. However, this has not been the case as extreme investor anxiety has decreased the appeal of high beta currencies and boosted demand for safe havens. Unsurprisingly, USD Over the past month, /CAD traded with a slight bias towards the positive, reaching 1.2868 last Wednesday, an area that has not been tested since December 2021.
The Bank of Canada’s hawkish stance has not helped the Canadian dollar. policymakers increased interest rates 25 basis points to 0.500% on Wednesday to curb red-hot inflation which reached a new 30 year high of 5.1% y/y. The central bank also indicated that borrowing costs would need to rise further but noted that there is still plenty of room to increase over the year. It did not rule out the possibility that a 50 basis point adjustment could be made in the future to control rising consumer prices.
Normal circumstances would have seen USD/CAD fall due to the BoC’s hawkish tone. However, with the Ukraine war in everyone’s minds, this has not happened. The pair is not likely to fall in a climate of growing geopolitical risk. In fact, it may rise on short-term episodes of flight to safety. It is important to remember that any de-escalation of the military conflict in Eastern Europe could reverse the situation in a blink of an eye. This would boost the loonie as well as paving the way towards a sharp sell-off USD/CAD.
Technically, USD/CAD is still biased in favor of the upside after failing to break below Fibonacci resistance at the 1.2600 level (38.2% Fibonacci Retracement of the June/December rally). If price continues its upward trend, the first resistance to look out for is at the last week’s high of 1.2878. However, a move above that level could set the stage for a test of the 2021 high at the 1.2964 region.
If USD/CAD moves to the downside, support can be seen at the 1.2600 psychological level, and then the 200-day moving mean. The medium-term rising trendline at 1.2550 will be activated if both floors are broken.
