USD/CAD eases from over two-year peak, bullish potential remains intact
- USD/CAD retreats a few pips from its highest level since June 2020 touched earlier this Monday.
- The USD surrenders its intraday gains to a two-decade high and acts as a headwind for the pair.
- Aggressive Fed rate hike bets, rising US bond yields should limit any meaningful USD pullback.
- Bearish crude oil prices could undermine the loonie and supports prospects for additional gains.
The USD/CAD pair attracts some sellers in the vicinity of the 1.3700 mark and retreats a few pips from its highest level since June 2020 touched during the early North American session. The pair is now trading around the 1.3635-1.3630 region, still up over 0.30% for the day.
The US dollar surrenders a major part of its intraday gains to a two-decade high and turns out to be a key factor acting as a headwind for the USD/CAD pair. The USD pullback could be solely attributed to some profit-taking amid a solid recovery in the British pound and extremely overbought conditions.
That said, growing acceptance that the Fed will tighten its monetary policy at a faster pace should limit the USD corrective pullback. It is worth recalling that the Fed signalled last week that it will likely undertake more aggressive increases at its upcoming meetings to tame inflation.
The Fed's hawkish outlook pushes the yield on the rate-sensitive 2-year US government bond to a 15-year peak and the benchmark 10-year Treasury note to its highest level in 11 years. This, along with the prevalent risk-off environment, should continue to boost demand for the safe-haven greenback.
Apart from this, the underlying bearish sentiment surrounding crude oil prices, amid fears that a deeper global economic downturn will dent fuel demand, is seen undermining the commodity-linked loonie. This, in turn, supports prospects for a further near-term appreciating move for the USD/CAD pair.
In the absence of any major market-moving economic releases, either from the US or Canada, traders on Monday will take cues from speeches by influential FOMC members. This, along with the US bond yields and the broader risk sentiment, will influence the USD and provide impetus to the USD/CAD pair.
Technical levels to watch