USD/CAD Falls Towards 1.2800 Oil Rises Despite Hawkish FOMC Minutes

After failing to surpass 1.2820 during the Asian session, the USD/CAD pair has experienced a dramatic decline. The pair is targeting a drop below 1.2800 as market investors have abandoned the US dollar index (DXY) despite Wednesday's release of exceptionally hawkish Federal Open Market Committee (FOMC) minutes.

The FOMC minutes indicated that all FOMC members supported a 50 basis point (bps) increase in policy rates, which suggests that a sustained environment of policy tightening is imminent. Fed policymakers feel that the U.S. economy requires more massive rate rises because inflation is soaring and the job market is highly tight. Therefore, the necessity to return to neutral rates is really urgent. In addition, the Fed estimates neutral rates to be at 2.9%.

In the meantime, oil prices have surpassed the key resistance level of $110.00 as speculators anticipate a rebound in aggregate demand. The Chinese administration will shortly lift restrictions on the movement of people, commodities, and machinery in Shanghai, China, following a two-month lockdown. Notably, China is the largest importer of oil, and the revival of demand in China is sufficient to encourage oil bulls.

Traders should be aware that Canada is the major exporter of oil to the United States and that rising oil prices will result in a greater influx of capital into the Canadian dollar region.

USD/CAD