CANADIAN DOLLAR OUTLOOK: SLIGHTLY BULLISH
- Geopolitical tensions will continue to dominate near-term price action
- If the crisis in Eastern Europe subsides and sentiment improves, high-beta currencies such as the Canadian dollar[1] could strengthen
- The Bank of Canada's interest rate decision could also boost the loonie, pushing USD/CAD[2] lower
Most read: US Dollar Price Action Setups - EUR/USD, GBP/USD, AUD/USD, USD/CAD[3]
USD[4]/CAD has been on a roller coaster ride in recent days amid heightened geopolitical tensions in Eastern Europe after Russia launched a military operation and began an unprovoked invasion of Ukraine. Against this backdrop, the pair briefly climbed to a two-month high of 1.2878 on Thursday before settling around 1.2735 ahead of the weekend.
Although oil prices have surged this year[5], with the West Texas Intermediate blend up 5% in February and up over 22% in 2022, the Canadian dollar (loonie) has been unable to take advantage of the situation, as high volatility and risk-averse sentiment have limited the appeal of high-beta currencies while boosting demand for safe-haven assets.[6]
However, the situation could change in the coming days if the conflict between Ukraine and Russia eases. It is too early to tell how the crisis will unfold, but on Friday Moscow signaled a willingness to resume talks with the Ukrainian government, a sign that there is still a chance for diplomacy. Should hostilities abate, the Canadian dollar is well-placed to command strength in the near term, helped in part by improved terms of trade from higher commodity prices.
At the same time, Bank of Canada could accelerate USD/CAD’s reversal lower in the days ahead if it delivers a hawkish interest rate hike on Wednesday when its March monetary policy meeting concludes. That said, the bank
