- USD/CAD saw fresh selling on Monday and broke two days of winning streak.
- The strong intraday rally in oil prices underpinned the Canadian dollar and exerted downward pressure.
- Fed rate hike expectations, Ukraine crisis benefited USD and should limit losses.
The pair USD/CAD remained depressed early in the American session and was last seen flirting with the daily low, around the 1.2480-1.2485 region.
The pair struggled to capitalize on last week’s late recovery from the year-to-date low and found fresh supply on Monday, snapping two straight days of winning streak. A strong intraday rally in crude oil prices, now over 4% for the day, underpinned the commodity-linked Canadian dollar. This, in turn, was seen as a key factor attracting fresh selling around the USD/CAD pair, although the downside seems limited amid a nice pickup in US dollar demand.
Market sentiment remains fragile amid fading hopes for a de-escalation in the Ukraine war and talk of additional sanctions on Russia. This, coupled with growing acceptance that the Fed would tighten monetary policy at a faster pace to combat high inflation, acted as a tailwind for the dollar. In fact, markets have been pricing in a 100bp Fed rate hike over the next two meetings, which continued to support the rise in US Treasury yields.
In addition, the US last week announced a plan to sell up to 1 million bpd of oil from the Strategic Petroleum Reserve (SPR) for six months beginning in May 2022. In addition, the International Energy Agency also agreed to release more oil on Friday. This, along with a two-month truce between a Saudi-led coalition and the Iran-aligned Houthi group, eased concerns about oil supplies. In addition to this, the outbreak of COVID-19 in China could limit the rise in oil prices.
The combination of the aforementioned factors favors bullish traders and supports the prospects for some buying on the dips around the USD/CAD pair. That said, traders might refrain from making aggressive bets ahead of the FOMC’s monetary policy meeting minutes, due for release on Wednesday. Therefore, any attempted recovery move is more likely to attract fresh selling at higher levels and risks fizzling out rather quickly.
Technical levels
Source: Fx Street
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