USD/CAD consolidates losses near 1.30, where to next?

The USD/CAD pair dropped to its lowest level since early February at 1.2985 in the second half of the NA session and went into a consolidation phase afterward. As of writing, the pair is trading at 1.3005, losing 0.25% on the day.

After a calm start to the week, the pair has been facing an unabated selling pressure since Tuesday, losing more than 250 pips in three days. The strong recovery seen in the oil prices coupled with higher expectations of a rate hike from the Bank of Canada in July boosted the demand for the commodity-linked loonie. After peaking above the $45 handle on Thursday, the barrel of West Texas Intermediate gave back some of its earnings and is now trading at $4480, still up 0.15% on the day.

• BoC delivers support to CAD - Scotiabank
• Bank of Canada could hike rates as soon as July - Wells Fargo

On the other hand, despite a better-than-expected preliminary GBP growth reading for the first quarter of 2017, investors continue to sell their US dollars, pushing the US Dollar Index to its lowest level in more than nine months at 95.27. The latest sell-off seems to be triggered after Federal Reserve Bank of St. Louis President James Bullard said that there was more sympathy at the Fed for the view that inflation not coming back to target as quick as first thought.

• Fed's Bullard: September seems more likely to announce balance sheet adjustment
• Fed's Bullard: Inflation breakevens suggest Fed is being too hawkish
• Fed's Bullard: Current level of the policy rate is appropriate

Technical outlook

Indicators on the short-term 1-hour and 4-hour charts show oversold readings for the pair, suggesting that a correction in the short-term is likely. Furthermore, tomorrow is the last trading day of the week and of the month, and investors could look to cash in their profits before leaving for the weekend. A decisive break above the 1.30 handle could lift the pair towards yesterday's high at 1.3180 and 1.3100 could be seen as an interim resistance. On the downside, short-term supports align at 1.2970 (Jan. 31 low), 1.2905 (Sept. 5, 2016, low) and 1.2825 (Sept. 6, 206, low).