- US dollar weakness persists despite rate talks.
- Gold rally gathers steam as bull’s eye $1830.
- USDCAD sell-off continues as oil prices rally.
The US dollar remains under pressure after slumping to two-month lows against the majors. The dollar index, which tracks the greenback strength against the majors, hit lows of 94.86 as market participants reacted to US consumer prices rising at the fastest rate in 40 years.
The dollar remains below key support levels as market participants remain wary of whether the Federal Reserve will change its already hawkish outlook on rates. Risk-sensitive currencies led by the Australian dollar and Euro were some of the biggest beneficiaries of the dollar softness.
Gold technical analysis
Gold has also regained its upward momentum benefiting from the dollar strength plunging to two-month lows. XAUUSD powered through the $1820 resistance level, with bulls setting sights on the $1832 mark as the next resistance level.
A rally followed by a close above the $1832 mark could open the door for XAUUSD to make a run for the $1850 handle. On the flip side, failure to take out the $1832 level could leave the precious metal vulnerable for a pullback to the $1800 psychological level.
Gold Price Action Drivers
In the meantime, XAUUSD remains bullish, supported by dollar weakness. US treasury yields edging lower could continue piling pressure on the dollar strength likely to continue fuelling the upward momentum on the pair.
Gold, which is often seen as a hedge against inflation, also continues to attract bids in the market on the rise of US inflation to 7%. While the increase has increased the prospects of the FED hiking interest rates at its next live meeting in March, dollar strength could come into play.
St Louis Federal Reserve Bank President James Bullard has already hinted at the likelihood of the central bank hiking interest rates four times this year to stem the runaway inflation. Chatter on more than two rate hikes is likely to stem losses on the dollar, which could see XAUUSD coming under pressure.
Looking ahead, focus is on the release of the US jobless claims and monthly figures of the Producer Price Index as well as FED speak likely to influence dollar sentiments in the market.
Meanwhile, the Canadian dollar continues to strengthen across the board, taking advantage of dollar weakness and increasing oil prices. USDCAD has since dropped to two-month lows at the back of growing CAD strength. After touching highs of 1.2770 at the start of the year, the pair has since dropped to lows of 1.2490 and looking increasingly bearish.
A daily close below the 1.2480 level could result in renewed sell-off after the recent pullback. The next support level as part of the correction phase lower is at the 1.2303 level. Bulls, on the other hand, will have to ensure the pair finds support above the 1.2500 level to avert a push lower.
Oil rally impact
USDCAD looks set to remain under pressure below the 1.2500 level, especially with the dollar remaining under pressure on a sell-off of treasury yields. However, the rise in oil prices to above the $80 a barrel level appears to be fuelling CAD strength, given that oil is Canada’s biggest export.
Expectations of strong oil demand in 2022 could see oil prices edging higher, which should continue to offer more support on the CAD against the dollar. In addition, risk appetite in the currency market has improved with the easing of Omicron fears. Consequently, the bearish momentum on the USDCAD could continue awaiting potential rate hikes by the FED, likely to fuel dollar strength.