- USD/CAD gains strong positive traction for the second day in a row on Friday.
- Weaker oil prices weigh on the CAD and benefit the pair amid a stronger USD.
- Investors await the release of Canadian Retail Sales and Preliminary US PMIs for a further boost.
The pair USD/CAD has extended its intraday gains and has spiked to its highest level since March 17, around the 1.2680 regionduring the first half of the European session.
A combination of factors helped the USD/CAD pair build on the previous day’s solid rebound from a two-week low and gain strong continuation traction for the second day in a row on Friday. A softer tone around crude oil prices weighs on the CAD, currency linked to raw materials. This, coupled with the overall strength of the US dollaracts as a tailwind for the USD/CAD pair.
Investors continue concerned about slowing fuel demand in the wake of COVID-19 lockdowns in Chinathe world’s largest oil importer, and the outlook for weaker global growth. This further overshadows concerns about tight global supply and a possible Russian gas embargo, which in turn triggered further selling around crude oil.
On the other hand, the US dollar rose to its highest level since March 2020 and continued to be supported by expectations of a more aggressive monetary policy tightening by the US central bank. In fact, the chairman of the Fed, Jerome Powell has confirmed a 50 basis point rate hike at the next monetary policy meeting on May 3-4 and has also hinted at further consecutive increases this year.
The markets were quick to react and began evaluating three consecutive rate hikes of 50 basis pointswhich in turn pushed the 5-year US government bond above 3% for the first time since 2018. The sell-off in US fixed income markets continued on Friday. This, coupled with risk aversion, further drives safe-haven USD demand..
Market participants are now awaiting Canadian monthly retail sales data and preliminary US PMI figures for a fresh boost at the start of the American session. Aside from this, US bond yields and broader market risk sentiment will weigh on the USD. Investors will also take cues from the oil price dynamics to take advantage of some short-term opportunities around the USD/CAD pair.
USD/CAD technical levels
Source: Fx Street
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