USD/CAD remains depressed below 1.3000

• A combination of factors sparked fresh selling around USD/CAD on Friday.
• The risk boost weighed on the dollar, which is a safe haven, and put some pressure on it.
• The rebound in oil prices underpinned the loonie and added to the selling bias.

The pair USD/CAD extended the overnight pullback from the 1.3015 area and saw some follow-up selling on Friday. The pair was on the defensive during the early hours of the European session and was last seen near the daily low around the 1.2980-1.2975 area.

The turnaround in global risk sentiment, reflected in a generally positive tone in equity markets, prompted some selling around the safe-haven US dollar. Elsewhere, the modest rebound in crude oil prices underpinned the commodity-linked loonie and put downward pressure on the USD/CAD pair.

The Canadian dollar received additional support from strong domestic consumer inflation figures released on Wednesday, which raised bets for a 75 basis point rate hike by the Bank of Canada in July. However, the expectations of the Fed should continue to support the dollar and limit the losses of the USD/CAD pair.

Markets seem convinced that the Federal Reserve will maintain its aggressive tightening policy and raise interest rates by 75 basis points in July to curb rising inflation. This, in turn, warrants some caution for aggressive bears before traders begin to position themselves for any further downside moves for the USD/CAD pair.

Market participants are now awaiting St. Louis Fed President James Bullard’s scheduled speech, which along with the release of revised Michigan Consumer Sentiment Index and New Home Sales data could influence the dollar. Also, the dynamics of oil prices could boost the USD/CAD pair.

Technical levels