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The USD/CAD pair gained positive momentum for the third consecutive day on Friday, building on the week’s rebound from lows seen since the start of the year, around the mid-1.3700 region. The momentum pushed spot prices close to the 1.3940-1.3945 area, or a three-week high during the Asian session, helped by mild strength in the US dollar (USD).
In fact, the US dollar index (DXY) rose to a near one-month high following the Federal Reserve’s (Fed) hawkish pause on Wednesday. Moreover, the US-UK trade deal helped ease concerns that a full-blown trade war could trigger a US recession and provided additional support to the dollar ahead of the upcoming US-China tariff talks over the weekend.
Meanwhile, crude oil prices struggled to extend the momentum after a strong rally to a multi-week high the previous day, trading with a slight negative bias. This weakened the commodity-linked Canadian dollar and provided an additional boost to the USD/CAD pair. The price rise could also be attributed to technical buying following a breakout from multi-week trading range resistance, near the 1.3900 round number mark, the previous day.
However, expectations for a US-Canada trade deal may prevent traders from making aggressive bearish bets around the Canadian dollar (CAD) and limit the upside for the USD/CAD pair. In fact, U.S. Commerce Secretary Howard Lutnick said on Thursday that Washington will roll out dozens of trade deals next month. Nonetheless, spot prices appear to have formed a short-term bottom and are on track to post strong weekly gains.
Traders are now looking forward to the upcoming Canadian monthly employment data, which will boost the Canadian dollar in conjunction with oil price dynamics. In addition, speeches from a series of influential FOMC members should also help generate short-term trading opportunities around the USD/CAD pair.
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