USD/CAD climbs back above 1.2900 mark, flirts with weekly high amid weaker oil prices
|- USD/CAD gained traction for the second straight day and climbed closer to the weekly high.
- Retreating crude oil prices undermined the loonie and remained supportive of the move up.
- Hawkish Fed, recession fears favour the USD bulls and support prospects for further gains.
The USD/CAD pair built on the previous day's positive move and gained some follow-through traction for the second successive day on Thursday. The momentum lifted spot prices further beyond the 1.2900 mark, back closer to the weekly high during the early European session.
The overnight sharp pullback in crude oil prices undermined the commodity-linked loonie and turned out to be a key factor that acted as a tailwind for the USD/CAD pair. It is worth recalling that the black liquid on Wednesday witnessed an intraday turnaround from a one-and-half-week high after the US Energy Information Administration (EIA) reported a rise in fuel stocks. The report also showed that the US refiners ramped up production and are operating at 95% of capacity. This comes on the back of worries about slowing economic growth and eased concerns about tight supplies, which continued weighing on the commodity.
That said, modest US dollar weakness might keep a lid on any meaningful upside for the USD/CAD pair, though the bias seems tilted in favour of bullish traders. Fed Chair Jerome Powell, speaking at the central bank's annual forum on Wednesday, reaffirmed bets for more aggressive rate hikes and said that the US economy is well-positioned to handle tighter policy. Powell added that the Fed remains focused on getting inflation under control and the market pricing is pretty close to the dot plot. This, along with growing recession fears and the prevalent risk-off environment, should continue to offer support to the safe-haven buck.
Market participants now look forward to the US economic docket - featuring the Core PCE Price Index (Fed's preferred inflation gauge) and the usual Weekly Initial Jobless Claims. This, along with the US bond yields and the broader market risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Traders will further take cues from oil price dynamics to grab short-term opportunities around the major.
Technical levels to watch
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