• USD/CAD attracts buyers for the second straight day as the USD advances to a two-week high.
• Fed hike bets and geopolitical risks underpin the safe-haven buck, offsetting positive oil prices.
• Traders now look forward to the key BoC and Fed rate decisions for a fresh directional impetus.

The USD/CAD pair gains positive traction for the second straight day on Wednesday, extending this week’s recovery from the 1.3970-1.3965 region, or the lowest level since September 16. Spot prices climb further beyond mid-1.4000, hitting a fresh weekly top during the Asian session as traders now look to key central bank events.

The Bank of Canada (BoC) is scheduled to announce its decision amid bets for a 25-basis-point (bps) rate hike, though the focus will be on the outcome of a two-day FOMC meeting and Federal Reserve (Fed) Chair Kevin Warsh’s comments. Moreover, Thursday’s important US macro releases – the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index – will be looked at for more cues about the Fed’s future policy path. The outlook, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and provide a fresh impetus to the USD/CAD pair.

In the meantime, the CME Group’s FedWatch Tool indicates that traders have been pricing in over an 80% chance that the US central bank will raise borrowing costs again in December amid inflationary concerns stemming from elevated energy prices. Furthermore, stalled US-Iran talks and renewed attacks on Saudi Arabia keep the geopolitical risk premium firmly in play, which assists the safe-haven USD to attract buyers for the fourth straight day. However, positive crude oil prices could benefit the commodity-linked Loonie and act as a headwind for the USD/CAD pair, warranting caution for bulls.

The Wall Street Journal reported on Tuesday that the US told several Gulf Arab countries to prepare for a short and intense military campaign against Iran after the November 3 midterm elections. Adding to this, Iran-backed Houthis in Yemen claimed that they targeted Saudi Arabia’s defence ministry in Riyadh with a ballistic missile and that the hit was direct. Moreover, stalled US–Iran negotiations fuel worries about a further escalation of tensions in the Middle East, assisting crude oil prices to attract fresh buyers following a two-day corrective pullback from a multi-month top, touched last Friday.

USD/CAD -hour chart

Technical Analysis

The USD/CAD pair holds a constructive intraday bias above the 100-period Exponential Moving Average (EMA) on the 4-hour chart and the 23.6% Fibonacci retracement. Further up, initial resistance is aligned at the 38.2% Fibo. retracement at 1.4095, followed by the 50% retracement at 1.4134 and the 61.8% level at 1.4173. On the downside, immediate support is seen at the 23.6% retracement at 1.4046, ahead of the 100-period EMA at 1.4036. A deeper pullback would expose the structural floor around 1.3968.