USD/CAD rally above 1.2700, the largest one-day gain since November in spite of risk-off flows

USD/CAD rose by approximately 140 points on Friday to reach its highest level since May, just above the 1.2700 mark.

This is the biggest percentage gain in one day since November.

The pair rose as a result of risk-off flows. Recent BoC hawkishness, strong data and weak CAD support failed to make it a favorable market.

USD/CAD gained approximately 140 pips Friday to reach its highest level in over a month at 1.2700. At current levels of around 1.2720, it trades with about 1.1% on-the-day gains. Despite what would normally be a minor bearish combination of better-than-expected Canadian (Retail Sales), and worse-than expected US (flashPMI) data, the pair rallies.

This pair's leap, which was its largest since November 2021, comes despite the hawkish comments from BoC Governor Tiff Maklem earlier in week who indicated the possibility of additional 50 bps rate movements in the weeks ahead.

The upside in USD/CAD on Friday can be explained by a risk-off market trend on Friday. Major US equity bourses fell more than 2.0% each to reach new monthly lows, and traders citing concerns about tightening global central bank policy. It's not just the BoC that has been sending hawkish signals in recent days. Fed Chair Jerome Powell gave the green light to rate increases of 50 bps at future meetings. Even policymakers at the EECB are discussing rate hikes as early as July.

Next week will be a week of traders hoping for stability in risk appetite. If crude oil continues to be supported, this could open the door for a USD/CAD pullback toward last week's levels. BoC's Macklem, who will be returning to the wires Monday, will likely be closely scrutinised.


Date Of Update: 30 July 2022, 06:30