The USDCAD fell hard during the course of trading yesterday as the weakness in the dollar and the strength in the CAD combined to push the pair lower during this period. The region through 1.28 was broken and now the pai trades below the 1.27 region as of this writing. This is indeed a big turn around for the pair as it seemed to be heading comfortably to the 1.33 region with the bulls firmly in control just a few days back.
From that period onwards, we have been seeing the dollar on the backfoot due to the fact that it has been pushed lower by the geopolitical developments in the US and the possibility of a trade war. On the other hand, the CAD has been gaining strength during this period as the possibility of a revamped NAFTA agreement is on the anvil. The currency has been boosted by the fact that the Trump administration has been a bit lenient to its neighbours and do not seem to be pursuing a belligerent policy as was initially feared.
This has led to the belief that any kind of trade war would not affect Canada in any manner and it would be set to gain from the renegotiated agreements which are likely to come into force by the end of May. This is certainly good news for the Canadian economy and that is why we have been seeing the USDCAD pair under a lot of pressure.
Now the region around 1.25 seems to be a viable target, especially after we have seen the strong employment data from Canada on Friday. This piece of incoming data more or less confirms that the BOC would be inclined to hike rates for one more time by this June and this would be a further boost for the CAD. There are no specific economic news or data from Canada but we have the PPI data from the US though it is expected to have little impact on the market.
This article was originally posted on FX Empire
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