USD/CAD drops to three-day low, around 1.3600 mark ahead of Canadian/US data
- USD/CAD turns lower for the second straight day amid broad-based USD weakness.
- A combination of factors could offer some support to the pair and help limit losses.
- Growing recession fears act as a headwind for oil prices and undermine the Loonie.
- Hawkish Fed, rising US bond yields should revive the USD demand and lend support.
The USD/CAD pair continues with its struggle to find acceptance or build on the momentum beyond the 1.3700 mark and turns lower for the second successive day on Tuesday. The downward trajectory drags spot prices to a three-day low, around the 1.3600 round figure heading into the North American session and is sponsored by the heavily offered tone surrounding the US Dollar.
The Bank of Japan-inspired strong rally in the Japanese Yen is seen weighing on the greenback. Apart from this, a slight recovery in the risk sentiment - as depicted by a modest bounce around the US equity futures - exerts additional pressure on the safe-haven greenback and attracts fresh selling around the USD/CAD pair. That said, a combination of factors should help limit the downside for the buck and lend some support to the major, at least for the time being.
Investors remain concerned that a surge in new COVID-19 cases in China could delay a broader reopening of the economy and dent fuel demand. This, in turn, acts as a headwind for crude oil prices, which, in turn, is seen undermining the commodity-linked Loonie. Furthermore, growing recession fears might keep a lid on any optimism in the markets. This, along with the Fed's hawkish outlook, could revive the USD demand and attract some dip-buying around the USD/CAD pair.
Traders now look to Tuesday's economic docket, featuring the release of monthly Retail Sales figures from Canada and the US housing market data. The data might do little to provide any meaningful impetus, leaving the USD/CAD pair at the mercy of the USD demand. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the major.
Technical levels to watch