USD/CAD bears are in control as commodities skyrocket

• USD/CAD is in the hands of the bears and eyes are on a deeper test of critical demand area.
• The 1.2550s are on the radar but bears need to get below the 1.2630s first.

USD/CAD is stalling on the downside as the pair moves in toward the critical daily support area which had been highlighted in the prior session's analysis, USD/CAD Price Analysis: Bulls meet resistance in 1.2740s, focus is back on the downside. At the time of writing, USD/CAD is down some 0.6% at around the lows of 1.2649 after sliding from a high of 1.2744.

The Canadian dollar strengthened against its US counterpart on Wednesday as commodity prices surged again and the Bank of Canada hiked interest rates as expected for the first time since October 2018 despite the crisis in Ukraine.

The Commodity CRB Index has rallied to the highest levels since Sep. 2014 as OPEC+ decided to stick with its schedule of monthly supply increases despite low global inventories:

The price of oil, one of Canada's major exports, touched its highest level in nearly 11 years before paring gains, as supply disruptions mounted following sanctions on Russian banks amid the intensifying war in Ukraine.

Additionally, the situation is raising pressure on the West to reach an agreement on the Iran nuclear deal in the immediate term, but negotiations could also be pulled into the geopolitical chaos. In this context, oil prices are likely to continue rising at a fast clip, analysts at TD Securities said.

Meanwhile, Canada's central bank hiked its key interest rate by 25 basis points to 0.50% to help fight inflation and said it would continue with the reinvestment phase of its bond-buying program. The policy statement had a hawkish tone as well. There was another upbeat assessment of the growth outlook and warnings of more pervasive inflation which has lifted the price of the Canadian dollar.

''CAD has welcomed the news of BoC's 25bp rate hike. However, while the prospects of further hikes should support CAD on some crosses, we don't expect much follow-through in the short run,'' analysts at TD Securities said. ''Much of the good news is priced in, and CAD now screens as one of the most overbought (tactically overvalued) currencies on our dashboard globally.''

USD/CAD technical analysis

The following illustrates the price trajectory over a series of prior daily analysis:

USD/CAD live market

As illustrated, the price is running in accordance with the forecasted trajectory and is now embarking on a test of daily support that guards an area of imbalance on the chart towards the trendline support. The 1.2550s are on the radar but bears need to get below the 1.2630s first.