Dollar Rises to Two-Week High as Markets Price in Rate Hike and Oil Rebounds
The US Dollar (USD) has maintained its support ahead of the Federal Reserve's policy decision on Wednesday, pushing USD/CAD to a two-week high. This comes as markets have largely priced in a rate increase due to inflation concerns, with August's headline CPI at 3.4% year-on-year and PPI accelerating to 5.4%. The 10-year US Treasury yield has climbed above 5%, its highest level since 2007.
Oil prices have rebounded, with West Texas Intermediate (WTI) crude trading above $100 a barrel for the first time since May 21st. However, this has only limited further gains in USD/CAD, as Canada's commodity-linked dollar benefits from higher oil prices while being offset by a firmer US Dollar.
Technical analysts recommend positioning for a near-term pullback in USD/CAD as it approaches resistance levels between 1.3913 and 1.3950. Derivative traders are advised to buy longer-dated CAD call options, anticipating that commodity strength will eventually overwhelm the current US Dollar dominance.