- A combination of factors caused some selling around USD/CAD on the last day of the week.
- A rebound in oil prices underpinned the loonie and put pressure on amid modest USD weakness.
- With US bond yields picking up, Fed rate hike bets should limit USD losses and provide support.
The pair USD/CAD it maintained its offered tone heading into the American session and was last seen trading near the daily low, around the key psychological 1.3000 level.
The pair witnessed some selling on the last day of the week and extended the modest overnight pullback from the 1.3075 region, or its highest level since November 2020. Crude oil prices rose for the third day in a row and underpinned the commodity-linked Canadian dollar. Aside from this, the US dollar’s modest pullback from a two-decade high put downward pressure on the USD/CAD pair.
Concerns about tightening global supply amid the prospect of a European Union ban on Russian oil turned out to be a key factor acting as a tailwind for the black liquid. That said, concerns about faltering global demand in the wake of strict COVID-19 lockdowns in China and slowing global growth could curb any significant gains for crude oil, at least for now.
On the other hand, a nice recovery in global risk sentiment, as shown by a positive tone in equity markets, put a dent in demand for the traditional safe-haven dollar. That said, a combination of factors helped limit any deeper corrective decline in the USD and supports the prospects for some nose-diving buying around the USD/CAD pair, warranting bearish traders’ caution.
The risk boost in the markets, coupled with the prospect of more aggressive policy tightening by the Fed, triggered a strong rally in US Treasury yields. Fed chief Jerome Powell promised on Thursday that the US central bank is prepared to do more to curb runaway inflation and is ready to raise interest rates by 50 bps at each of the next two policy meetings.
Therefore, it will be prudent to wait for a strong follow-up sell-off before confirming that the USD/CAD pair has topped out in the near term. Market participants are now eagerly awaiting the preliminary US Michigan Consumer Sentiment Index for a fresh boost. Aside from this, the oil price dynamics should allow traders to take advantage of some short-term opportunities on the last day of the week.
Technical levels
Source: Fx Street
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