USD/CAD climbs back above 1.3700, lacks continuation buying

• USD/CAD regains lost ground amid a modest USD recovery from the daily low.
• Fears of a full-blown banking crisis drive some safe-haven flows and benefit the USD.
• An intraday rise in oil prices could benefit the CAD and limit the pair’s gains.

He USD/CAD it has made some buying near the 1.3680-1.3675 area on Friday and has now reversed much of its intraday losses. The pair has rallied back above the 1.3700 level during the mid-European session, although the intraday rally lacks bullish conviction.

Crude Oil Prices Regain Ground on the last day of the week and move away from the 15-month lows reached on Thursday, on hopes of a strong recovery in fuel demand from China. This, in turn, benefits the CADa currency linked to commodity prices, acting as a headwind for the USD/CAD pair amid modest US dollar weakness. Expectations that the Fed will adopt a less aggressive stance in the face of worsening economic conditions weigh on the dollar.

The bankruptcy last week of two midsize US banks –Silicon Valley Bank and Signature Bank– forced investors to lower their expectations in favor of a more aggressive tightening of monetary policy by the US central bank. In fact, markets are now pricing in a higher probability of a minor 25 basis point hike at the next FOMC policy meeting from March 21-22. This is evidenced by the further decline in yields on US Treasury bonds, which turns out to be a key factor exerting downward pressure on the dollar.

Having said that, weaker risk tone across the board spurs some safe-haven flows into the dollar and helps the USD/CAD pair reverse some initially lost ground. Despite multi-billion dollar lifelines for troubled US and European banks, investors continue to concerned about widespread contagion and the possibility of a full-blown global banking crisis. This, coupled with fears of an impending recession, takes its toll on global risk sentiment and benefits traditional safe-haven currencies.

Besides, the fact that the Bank of Canada (BoC) last week became the first major central bank to pause its rate hike cycle could weigh on the Canadian dollar. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the upside and supports the prospects of a move towards the recovery of the 1.3800 level. The Michigan Consumer Sentiment Index is due to be released today, which could lead to new short-term opportunities before the weekend.

USD/CAD technical levels to watch