Today, the USD/CAD pair is trading with a positive tone for the third consecutive day, climbing to a new multi-year high.
The short-term fundamental backdrop favors the bulls, suggesting that the path of least resistance for spot prices remains upward.
The Canadian dollar continues to face pressure due to expectations of a significant rate cut by the Bank of Canada, which could occur tomorrow, Wednesday. This sentiment was fueled by a spike in domestic unemployment in November. Additionally, a slight decline in crude oil prices undermines the commodity-linked Canadian dollar, helping the USD/CAD pair rise. However, the absence of strong follow-through buying in the U.S. dollar is limiting the pair's gains.
Friday's U.S. Nonfarm Payrolls (NFP) report confirmed that the Federal Reserve is likely to lower interest rates in December. This has kept U.S. Treasury yields near October lows, capping the dollar's recovery post-NFP. However, expectations of a less dovish Fed policy help prevent significant losses for the U.S. dollar, providing support for the USD/CAD pair.
Meanwhile, traders should refrain from taking aggressive directional positions ahead of key U.S. macroeconomic data and central bank event risks. The U.S. Consumer Price Index (CPI) report, due on Wednesday, will offer clues about the Fed's rate path and could stimulate the dollar.
Additionally, the Bank of Canada's policy decision, also on Wednesday, will determine the next phase of directional movement for the USD/CAD pair.
Technical Analysis:Oscillators on the daily chart are attempting to move into overbought territory, indicating that USD/CAD could face a slight correction or consolidation in the near term.
Therefore, traders focused on the pair's upside should avoid opening new positions at this moment.