The USD/CAD pair started the week with a slight downturn despite Friday’s strong rally of over 100 pips. It is currently trading around the mid-1.3500s during the Asian session on Monday. This drop is partially due to a modest increase in Crude Oil prices, which is supporting the Canadian Dollar (CAD) and putting pressure on the USD/CAD pair. However, the potential impact of a hurricane on the US Gulf Coast, as well as a weaker Canadian jobs report released on Friday, may help limit further losses for the pair.
On the other hand, Friday’s mixed US employment data showed a weakening labor market, leading to reduced expectations for a larger interest rate cut by the Federal Reserve (Fed). This has caused investors to seek safety in the US Dollar (USD), thereby limiting aggressive bearish bets on the USD/CAD pair. As a result, traders are advised to wait for a stronger follow-through selling pressure before considering any significant bearish positions on the pair.
Looking ahead, there are no major economic releases scheduled for Monday from either the US or Canada. As a result, the broader risk sentiment and movements in US bond yields are likely to influence the USD’s performance. Additionally, fluctuations in Oil prices will impact the CAD, potentially creating short-term trading opportunities around the USD/CAD pair.
In the realm of financial markets, the terms “risk-on” and “risk-off” are commonly used to describe investors’ risk appetite during specific periods. In a “risk-on” market, investors are optimistic about the future and are more inclined to invest in riskier assets. In contrast, a “risk-off” market reflects investor caution and a preference for safer, less volatile assets that offer stable returns.
During periods of “risk-on”, stock markets tend to rise, commodities (excluding Gold) generally gain value, and currencies of commodity-exporting countries strengthen due to increased demand. In contrast, during “risk-off” periods, Bond prices rise, Gold performs well, and safe-haven currencies like the Japanese Yen, Swiss Franc, and US Dollar see increased demand.
Currencies such as the Australian Dollar (AUD), Canadian Dollar (CAD), and New Zealand Dollar (NZD) typically rise during “risk-on” markets as their economies heavily rely on commodity exports. In such periods, the demand for commodities increases, driving up prices. Conversely, major currencies like the US Dollar, Japanese Yen, and Swiss Franc tend to appreciate during “risk-off” periods, as investors seek safety in these stable currencies and assets.
