USD/CAD Trades Flat after Volatile Trading and Rising US yields

Insights

• The dollar weakened as new sanctions on Russia underpinned the Loonie 
• Benchmark yields rose as the Fed implements more aggressive rate hikes
• Gold and silver prices remained little changed due to new sanctions 
• Oil prices continue to climb as European countries consider new sanctions

Despite a volatile trading session, the dollar held steady due to rising oil prices underpinned the commodity-linked Loonie. The ten-year treasury yield climbed to 2.56%, the highest level since May 2019. After Fed Gov. Brainard’s statement that the Fed must implement a more aggressive policy to drive down inflation, benchmark yields surged several basis points. Due to rising oil prices and robust macro data, commodity-linked currencies like the Loonie rose. New sanctions on Russia continue to act as a tailwind for both silver and gold prices. Oil prices continued to rise on the prospect of new Russian sanctions. Investors await minutes from the latest FMOC meeting, which will be released on Wednesday.

The US reported the February trade balance today. The actual balance was -$89.2 billion compared to the expected -$88.5 billion. The reading remained little changed from the previous month, a record shortfall. Exports increased by 1.8%, and imports rose 1.3%. The Russia-Ukraine conflict could reduce demand for US exports in the coming months.

Technical Analysis

The USD/CAD traded flat after recovering from downward pressure from rising oil prices, which boosted the Loonie. However, losses should be limited by the more aggressive Fed rate hikes. The pair remains below the critical level of 1.25 and might get dragged down lower due to increasing new sanctions on Russia. Resistance is seen near the 10-day moving average near 1.25. Support is seen near today’s lows near 1.24. A break below support would expose the November 10th daily low near 1.2387, 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 even though 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).