USD/CAD Falls Back To 1.2680 Amid Indecisive Trading Conditions

The USD/CAD pair saw choppy trading conditions on Thursday and is back to flat around 1.2680 having been as high as 1.2734.

Geopolitics remains the main talking point in the market, with investors jittery as NATO/Russia relations sour, shelling resumes in Ukraine.

At one point, the pair was rallying as high as the 1.2730s where it was, at the time, trading higher by about 0.4%, before pulling back to trade flat in the 1.2680s in recent trade.

Geopolitics remains the main talking point in the market right now, with investors nervous at the prospect that shelling between Ukraine armed forces and pro-Russia separatists across a ceasefire line in Eastern Ukraine escalates into a broader Russia/Ukraine conflict.

NATO leaders further amplified their warnings that Russia looks to be on the verge of military action against Ukraine and warned that the country is looking to fabricate a pretext for invasion.

These fears are currently weighing heavily on the global equity space, but currency markets have been mostly able to resist the risk-off flows seen in other asset classes on Thursday.

That could be because Wednesday’s Fed meeting minutes, as well as Thursday’s weaker than expected weekly jobless claims and February Philadelphia Fed manufacturing, have dampened the US dollar’s safe-haven appeal for now.

But following recent upside inflation surprises and further hawkish commentary from Fed’s James Bullard, traders will be closely watching what other Fed policymakers have to say in the coming days.

Any indications for support for a 50bps hike in March, combined with ongoing geopolitical risk-off could help push USD/CAD back above 1.2700 again before the week is out.

The Canadian dollar’s high correlation to crude oil prices, which would be expected to rally on a Russian invasion of Ukraine, means that in a flight to currency havens, it wouldn’t perform as poorly as some risk-sensitive peers. A retest of this year’s triple-top in near 1.2800 seems unlikely if, say, a Russia/Ukraine conflict was to send WTI above $100.

Shelling in the contested Donbas region of Eastern Ukraine between the armed forces of Ukraine and pro-Russia separatists has resumed.

The report cited how Russia is building a bridge close to the Ukrainian border and building up blood supplies, presumably as it prepares for battle.

The latest reports of shelling haven’t had a market impact, but US equities continue to trade with a strongly risk-off bias amid continued concerns about escalating geopolitical tensions, with the S&P 500 trading near lows of the day just above 4400, down about 1.4% on the day.