USD/CAD bounces up from 1.2350 and approaches 1.2400

• The US dollar, contained at 1.2350, returns to levels near one-week highs at 1.2400.
• The greenback bounces up after upbeat housing, manufacturing data.
• USD/CAD is expected to rally towards 1.25/26 after BoC – Scotiabank.

The US dollar has shrugged off previous weakness and bounced up from session lows at 1.2350 against its Canadian counterpart, returning to levels right below 1.2400 and turning positive on daily charts.

The dollar bounces up after US data

The greenback has bounced up, to regain lost ground following a soft performance during the Asian and European trading sessions. Better than expected US new home sales and the strong performance of the Richmond Fed Manufacturing Index seem to have reactivated confidence in the US dollar, pushing the pair back to levels near the one-week top, at 1.2400.

Sales of new homes have surged 14% in the US in September, hitting a six-month high rate of 800,000 units and beating market expectations of 620,000 units sold. Furthermore, the Richmond Fed Manufacturing Index improved to 12, from -3 in the previous month, with all components: shipments, new orders, and employment showing advances. On the negative side, home prices have increased below expectations.

The Canadian dollar had edged up earlier, buoyed by higher oil prices and improved market sentiment on the back of strong corporate earnings. The CAD, however, remains heavy, with the market positioning for a dovish BoC monetary policy statement later this week.

USD/CAD to appreciate towards 1.25/26 after BoC – Scotiabank

The FX Analysis team at Scotiabank expects the pair to advance further this week, with a dovish BoC increasing negative pressure on the CAD: “We look for narrow range trading for the CAD ahead of tomorrow’s policy decision and feel the risk of soft-pedaling nearer-term rate expectations might nudge the CAD somewhat lower in the short-run. USD gains to the 1.25/1.26 will very likely be met with renewed USD supply, however.”

Technical levels to watch