USD/CAD Edged Higher as Dollar and Benchmark Yields Strengthen

Insights

• The dollar gets firmed after the release of Fed minutes
• The 10-year yield nears its highest level since March 2019 ahead of hawkish Fed comments and faster tightening 
• Gold and silver prices spiked due to increased risk-off market sentiment
• Oil prices fall as US and EIA members commit to releasing strategic reserves 

The dollar held steady despite a volatile trading session due to rising oil prices underpinned the commodity-linked Loonie. Benchmark yields rose as the Fed indicated it would tighten rates more quickly The ten-year treasury yield climbed higher to 2.67%, approaching highs from March 2019. Gold and silver prices moved higher due to new sanctions being placed on Russia, increasing risk-off sentiment. Oil prices fell 2.2%, trading at $99.73 per barrel as the US commits to deploying 60 million barrels from strategic reserves, and member states of the EIA commit to releasing 120 million barrels. 180 million barrels would be released in total.

FOMC meeting minutes from March were released today. The minutes indicated that the Fed plans to shrink the balance sheet by $95 billion per month likely to begin in May. A maximum reduction of $60 billion in treasuries and $35 billion in mortgage-backed securities would be phased in over three months. A 50-basis point increase was likely to take place at upcoming meetings. Members were leaning toward more aggressive moves. The Fed also increased its inflation outlook and lowered its expectations for economic growth.

Technical Analysis

The USD/CAD faced positive momentum, boosting the currency pair above the key psychological level of 1.25. More aggressive Fed policy, falling oil prices, and rising yields show signs of optimism for bullish traders. However, new sanctions on Russia will underpin the Loonie and might limit gains. Resistance is seen near the 10-day moving average near 1.265. Support is seen near today’s lows near 1.24. A break below support would expose the November 10th daily low near 1.223, indicating further downward pressure. Short-term momentum turned positive as the fast stochastic had a crossover buy signal.

The medium-term momentum is negative but has positive momentum despite that the MACD line generated a crossover sell signal. This scenario happens when the MACD line (the 12-day moving average minus the 26-day moving average) crosses the MACD signal line (the 9-day moving average of the MACD line).