USD/CAD boosted by marginally stronger US dollar, risk aversion

The USD/CAD pair has rebounded from weekly lows around 1.35920s and concludes trading closer to the 1.3600 mark. The pair is trading at 1.3592 at the time of writing after hitting the 1.3485 low.

The stronger American Dollar keeps the Canadian Dollar under pressure. The US Dollar Index (DXY), a gauge of the greenback’s value against a basket of its rivals, advances 0.18%, at 104.454, underpinned by higher US Treasury bond yields. The 10-year benchmark note rate edges up three and a half bps at 3.879%.

The American currency’s strength and falling oil prices have helped keep the USD/CAD rallying. The USD/CAD erases Tuesday’s losses and forms a tweezers bottom candle pattern, as it failed to crack the 50-day Exponential Moving Average (EMA) at 1.3583.

A sudden shift in market sentiment increased appetite for the US dollar for investors wishing to benefit from the American dollar’s safe-haven status.

On the data front; Richmond Fed Manufacturing Index improved to 1, exceeding the previous month’s contraction to -9. Moreover; US Pending Home Sales plummets, though sentiment lifts the US dollar. Wall Street extends its losses for the second straight day. The National Association of Realtors reported that Pending Home Sales for the United States dropped 4% MoM vs. expectations for a 4.6% contraction, which was better than estimated.

Although sentiment improved throughout the Asian and European sessions, courtesy of China’s easing Covid-19 restrictions, of late, shifted sour. Fears that the full reopening of China could unleash another virus outbreak weighed on Wall Street, which turned red.

Chinese authorities began to issue travel permits to Hong Kong residents and passports as it prepares to reopen borders on January 8.

Another reason that keeps the CAD under pressure is the oil price, with WTI’s extending its losses below $80.00 a barrel, after failing to clear the 200-day Exponential Moving Average (EMA) at $81.54.

In the week ahead, the US economic docket will feature Initial Jobless Claims for the week ending on December 23, while the Canadian calendar will unveil the CFIB Business Barometer on Friday.

Technically, the USD/CAD continues to advance, and it is approaching the 1.3600 mark. The Relative Strength Index (RSI) shifted bullish above the 50-midline, while the Rate of Change (RoC) is still flashing signs that selling pressure is beginning to wane.

If the pair is able to clear the 1.3600 mark, the following resistance would be the December 23’s high at 1.3658, followed by the December 22 pivot high at 1.3684. Once those levels are cleared, the next stop would be 1.3700.