The CAD bulls may be facing exhaustion, having engineered a 1,500-pip decline in the USD/CAD pair over the past five months. The pair is trading in the narrow range of 1.3130 to 1.3240 for the seventh day. The USD/CAD pair fell just 0.34% and remains range-bound during Wednesday’s Asian trading hours.
The pair is lacking a clear directional bias despite the rise in oil prices on Tuesday. The Canadian dollar usually draws strong bids when oil rallies. However, on Tuesday, the gains in CAD were meager. The black gold rose over 2% to $ 43.50 after the American Petroleum Institute (API) reported a bigger-than-expected oil inventory drawdown of 4.524 million barrels for the week ending August 21.
Bank of America Global Research noted that the pair has seen a more pronounced downtrend in the past four weeks. Since late July, the Canadian dollar has continued to appreciate against the US dollar, though it has underperformed many G10 peers, largely on the back of persistently buoyant risk appetite and a broadly weaker USD, despite stable oil prices due to the ongoing pandemic and the second wave of infections.
Bank of America Global Research, however, expects consolidation to continue in the short-term. The investment bank’s research note said: “Over the shorter term, we think USD/CAD may continue to consolidate in the low of 1.30, but medium-term we remain buyers on dips.”
Also, the Jackson Hole Economic Symposium takes caution ahead may be keeping volatility low to make less risky security and gain more investments.
However, it is expected to signal tolerance for above-target inflation during the speech at the Symposium on Thursday by Fed’s chair Jerome Powell. That will likely bolster inflation expectations in the US and add to bearish pressures around the greenback.