• Risk aversion boosts the US dollar across the board.
• Fed Chair Powell warrants more rate hikes and a tight policy until inflation is under control.
• USD/CAD erases weekly losses after rising almost a hundred pips.

The USD/CAD bounced sharply on Friday after Powell’s speech and amid a sharp decline in equity prices in Wall Street. The pair climbed from 1.2920 to 1.3010, hitting a two-day high.

A reversal of the US dollar across the board followed by the deterioration in market sentiment boosted USD/CAD. The pair is hovering around 1.3000 and could test Wednesday’s high at 1.3018. The loonie erased weekly gains.

No surprises, but volatility

Fed Chair Powell mentioned the central bank needs to keep raising rates that will persist at higher levels for some time. “We still expect the Fed to raise key interest rates from the current 2.50% to as high as 4% by year-end. Powell's statements also signal that he supports a front-loading of rate hikes. The sharp tightening of monetary policy, however, is likely to trigger a recession next year”, said Dr. Christoph Balz, Senior Economist at Commerzbank.

Powell’s comments triggered volatility despite offering no major surprises. The US 2-year bond yield stands at 3.42% (up 1.45%), and the 10-year at 3.03% (up just 0.23% and below the level it had before).

In Wall Street, the Dow Jones is falling by 1.60% and the Nasdaq by 2.45%. The risk-off mode boosted the dollar. The DXY bottomed at 107.60 and as of writing, it is back at the 108.50, area.

The USD/CAD is about to end the week practically flat. It still faces resistance at the 200-week Simple Moving Average at 1.3025 while it is being supported by the 1.2890/1.2900 zone that contains the 20-day SMA.

Technical levels