USD/CAD flirts with weekly lows amid rising oil prices and targets 1.2800

  • USD/CAD moves lower for the second day in a row and updates its weekly low on Wednesday.
  • A good recovery in oil prices benefits the CAD and acts as a headwind for the pair.
  • The decline appears limited ahead of the expected FOMC monetary policy decision.

The pair USD/CAD remains on the defensive during the European session on Wednesday, keeping around the region of 1.2810-15in the area of ​​weekly lows.

Crude oil prices up almost 3% on Wednesday after European Commission President Ursula von der Leyen announced the sixth round of sanctions against Russia. The proposal includes phasing out Russian crude supplies within six months and refined products by the end of the year, which helped offset concerns about demand in China and acted as a tailwind for black gold. This, in turn, benefits the commodity-linked CAD and weighs on the USD/CAD pair.

Nevertheless, decline remains supported amid underlying bullish sentiment around the US dollarreinforced by expectations of a more aggressive tightening by the Fed. Investors seem convinced that the US central bank would raise interest rates at a faster pace to reduce runaway inflation. This was evident from elevated US Treasury yields, which helped the USD hold near multi-year highs and extended some support to the USD/CAD pair.

Therefore, the market’s focus remains on the outcome of the FOMC’s two-day monetary policy meeting, scheduled to be announced later in the US session today. The Fed is expected raise interest rates by 50 basis points and hold plans to begin whittling down its massive balance sheet of nearly $9 trillion. Investors will also watch comments from Fed Chairman Jerome Powell to see if the US central bank is ready to raise rates even if the economy weakens.

Ahead of the key event, the release of the ADP report on US private sector employment and the ISM Services PMI could provide some momentum. Aside from this, the oil price dynamics could allow investors to take advantage of some short-term opportunities around the USD/CAD pair.

USD/CAD technical levels

Source: Fx Street

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