USD/CAD slumps below 1.34 as loonie capitalizes on crude oil rally
- Barrel of West Texas Intermediate rises nearly 4% on Tuesday.
- Improved market sentiment seems to be helping crude oil gain traction.
- US Dollar Index looks to close the day higher ahead of tomorrow's Fed announcements.
The USD/CAD pair came under a renewed bearish pressure in the second half of the day and dropped below the 1.34 mark as the commodity-sensitive loonie gathered strength on the back of rising crude oil prices. As of writing, the pair was down 0.12% on a daily basis at 1.3393.
European Central Bank President Draghi's dovish remarks at a speech on Tuesday provided a boost to risk-sensitive assets. Germany's DAX rose more than 2% and the UK's FTSE added 1.2%. Similarly, Wall Street started the day sharply higher and remain on track to post strong gains. The upbeat sentiment also helped commodities gain traction and lifted the barrel of West Texas Intermediate to its highest level in a week at $54.29. As of writing, WTI was up 3.63% on the day at $53.80.
On the other hand, ahead of the FOMC's policy announcements tomorrow, the greenback took advantage of the broad-based selling pressure surrounding the major European currencies and the US Dollar Index advanced to its highest level since early June at 97.77 to help the pair keep its losses limited for the time being.
Previewing the Fed event, "It is too early to tell if the Fed has been promulgating a one or two rate cut insurance policy or a full-fledged reduction cycle. The governors themselves probably do not know, there are far too many outstanding variables," said FXStreet senior analyst Joseph Trevisani.
"What the governors do know, and it is a tribute to the persistence of the Yellen and Powell administrations, is that the insurance premiums they paid for three years have given the Fed a flexibility and assurance that the ECB and the Bank of Japan can only envy."
Key technical levels
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