The USD/CAD Pair Consolidates the Overnight Strong Rally around 220 Pips from Sub-1.3400 Levels


The USD/CAD pair fluctuates in a narrow band on Tuesday and consolidates the overnight strong rally around 220 pips from sub-1.3400 levels. The pair remains steady near a one-week high through the early European session, with bulls now awaiting a sustained strength beyond the 1.3600 round-figure mark.

Crude oil prices edge high and recover a part of the previous day’s slump of nearly 6.5% amid hopes for a recovery in fuel demand amid the easing of COVID-19 curbs in China.

Therefore this underpins the commodity-linked Loonie and acts as a headwind for the USD/CAD pair. The downside, however, remains cushioned amid the emergence of some US Dollar buying, bolstered by bets that the Federal Reserve may raise interest rates more than projected.

The Institute for Supply Management (ISM) reported that the US Service PMI unexpectedly increased to 56.5 in November from 54.4 in the previous month. This comes on the back of the upbeat US monthly jobs report released on Friday and suggests that the economy remained resilient despite rising borrowing costs.

The incoming strong US macro data validates Fed Chair Jerome Powell’s forecast that the peak interest rate will be higher than expected.

The mixed fundamental backdrop, meanwhile, warrants some caution before placing strong directional bets around the USD/CAD pair. Traders might also prefer to move to the sidelines and await the latest monetary policy update by the Bank of Canada (BoC) on Wednesday.

Traders on Tuesday might take hints from the publication of Trade Balance data from the US and Canada. Apart from this, the USD and oil price dynamics should provide some impetus.

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