USD/CAD refreshes monthly top below 1.2800 ahead of Canada elections
- USD/CAD bulls take a breather after two-week uptrend, grinds higher of late.
- No major policy change expectations keep bulls hopeful unless any surprises.
- Risk-off mood, WTI pullback adds to the bullish catalysts.
- Canadian election results become the key amid light calendar, off in China, Japan.
USD/CAD rises to the fresh monthly top, recently wobbling near 1.2775, as Canadian citizens brace for Monday’s Federal elections.
While the loonie pair’s previous upside could be linked to the firmer US dollar, caution ahead of today’s Canada elections seem to challenge the bulls of late. Even so, the pullback in oil prices, Canada’s key export and Fed tapering tantrum, coupled with no major hopes from Canadian elections favor USD/CAD buyers.
US Dollar Index (DXY) rose to the highest since August 23 on Friday as the risk-off mood escalates. The main catalysts behind the moves are the COVID-19 fears and chatters that the US Federal Reserve (Fed) will hint tapering during this week’s Federal Open Market Committee (FOMC). Additionally, escalating tensions between China and the Western allies, namely the US, Australia and the UK, also weigh on the market sentiment and underpin the US dollar.
At home, Canadian Federal Elections fail to probe the traders as Prime Minister Justin Trudeau's Liberals and Erin O'Toole's Conservatives brace for a tough battle. “The Canadian election, whatever its political outcome, will change almost nothing in Ottawa. Economic and monetary policy will remain, the general approach to the pandemic will continue and if the Conservatives win they will govern in a tacit or overt coalition. The scope for substantive policy changes will be close to nil,” said FXStreet’s Joseph Trevisani.
Against this backdrop, US Treasury yields remained firmer and the Wall Street benchmarks closed in the red while the S&P 500 Futures drop 0.29% intraday at the latest.
It’s worth mentioning that the risk aversion and firmer USD weigh on the WTI prices and propel the USD/CAD. That said, remains pressured for the fourth consecutive day by the press time.
Looking forward, Canadian elections may entertain the USD/CAD traders ahead of Wednesday’s Fed meeting. However, an off in China and Japan, coupled with a lack of major data/events from abroad, can challenge the momentum traders.
Technical analysis
USD/CAD bulls need a clear upside break of 1.2807-12 area, comprising a two-month-old horizontal resistance, to challenge the yearly peak of 1.2949, marked last month. Alternatively, the 1.2700 threshold including multiple tops marked since late August restricts the short-term downside of the pair.