USD / CAD falls back to 1.2700 as US dollar disintegrates – FXStreet

• USD / CAD is again probing weekly lows around the 1.2700 level as the USD weakens.
• In the absence of notable economic events in Canada, the loonie is poised to take a cue from the dollar.

USD / CAD is back to trading just north of the 1.2700 level, after reversing Wednesday’s highs above 1.2790 in the wake of the Fed rate decision. The loonie is benefiting from a weaker dollar and the USD / CAD is currently trading around 40 pips or 0.3% lower on the day.

Loonie takes inspiration from the dynamics of the US dollar

There hasn’t been much to say about Canadian fundamentals so far this session, other than the development of ADP nonfarm employment in November which showed the economy added 40.8K jobs during the month (the official November labor market report released on December 4 showed the country adding 62K jobs). So the loonie is trading largely on the US dollar / risk appetite dynamic, now that pricing from a more accommodative BoC has already taken place (which is why the CAD underperformed on Wednesday) .

Indeed, the dynamics of the US dollar and risk appetite are very certainly positive for the loonie on Thursday, as the weakness of the US dollar pushed the loonie back towards the 1.2700 handle, an impressive turn after as the pair hit highs of 1.2790 for the third time. week after the Fed’s monetary policy announcement on Wednesday.

The US dollar (and under the USD / CAD) is being pushed lower by a few factors, including 1) Fed Chairman Powell’s dovish tone at the post-meeting press conference, 2) a continued rise in hopes that deals can be made on other US. Covid-19 aid and a Brexit deal and 3) recently released figures from the US labor market and manufacturing survey, which sparked an increase in bets for further stimulus to the Fed in January. As a result, the dollar index (DXY) fell below the 90.00 level for the first time since April 2018.

USD / CAD remains in the weekly range for the time being

So far, the USD / CAD has not been able to cross the southern edge of the 1.2690ish-1.2790ish range which has prevailed so far for much of the week. The high end has now been tested 3 times, and the low end twice. If the USD continues to weaken, however, a further decline and a breakout to the south are likely.

USD / CAD hourly chart