USD/CAD pops up above 1.3100 with the loonie losing momentum
- USD/CAD bounces up from 1.3060 to reach session highs past 1.3100.
- The Canadian dollar retreats with oil prices on the back footing.
- Longer-term, the Canadian dollar is expected to be favoured by USD weakness – CitiBank.
The US dollar has broken higher during the North American trading session on Tuesday to regain lost ground against its Canadian counterpart after having depreciated about 0.5% over the last two days.
The loonie losses steam amid falling oil prices
Canadian dollar’s positive momentum has faltered on Tuesday, undermined by the decline on oil prices. The price of the West Texas Intermediate barrel has dropped nearly1.25% so far today hit by concerns about the impact of coronavirus lockdowns on global demand.
Higher hopes of a COVID-19 vaccine after the release of Moderna vaccine's promising test results and market speculation about a likely OPEC+ agreement to extend output cuts beyond January 2021 have failed to offset fears about the economic consequences of the escalating numbers of infections and deaths in Europe and the US.
The sourer market mood has reflected in equity markets. Wall Street is trading with moderate declines as Monday’s enthusiasm vanished; the Dow Jones Index loses 0.45%, with the S&P Index 0.2% down and the Nasdaq Index trading practically flat.
USD weakness might drive CAD higher in the mid-term – CitiBank
From a wider respective, the FX Analysis Team at CitiBank expects the Canadian dollar to appreciate steadily over the next months, as the US dollar loses ground: “The loonie has benefitted greatly from decreasing global uncertainty, as it trades high beta to risk-on; we expect this momentum to continue through 2021 and correspondingly a lower USD to be an important positive CAD driver. Besides, The Canadian government continues to support the economy. On the central bank front, the BoC has already paused some of their easing measures, which may also support CAD.”
Technical levels to watch