USD/CAD climbs back closer to 1.3000 mark amid sliding oil prices, stronger USD

The USD/CAD pair attracted fresh buying near the 1.2940 region on Monday and for now, seems to have stalled its retracement slide from the YTD peak touched last week. The pair maintained its bid tone through the early European session and was last seen hovering near the daily high, just below the 1.3000 psychological mark. 

Investors remained concerned about the fuel demand outlook amid growing fears about a possible global recession and the latest COVID-19 outbreak in China. This, to a larger extent, overshadowed worries over tight global supplies and exerted some downward pressure on crude oil prices, which, in turn, undermined the commodity-linked loonie. Apart from this, the emergence of fresh US dollar buying provided a goodish lift to the USD/CAD pair on the first day of a new week.

Following Friday's modest pullback from a fresh two-decade high, the US dollar was back in demand amid growing acceptance that the Fed would stick to its faster policy tightening path. The bets were reaffirmed by FOMC minutes released last Wednesday, which indicated that another 50 or 75 bps rate hike is likely at the July meeting. Adding to this, the upbeat US monthly jobs report reinforced hawkish Fed expectations and remained supportive of the bid tone surrounding the greenback.

The prospects for more aggressive rate hikes by the Fed lifted the yield on the benchmark 10-year US government bond back above the 3.0% threshold. This, along with a generally weaker risk tone, offered additional support to the safe-haven buck. The fundamental backdrop supports prospects for a further near-term appreciating move for the USD/CAD pair. That said, bulls might refrain from placing fresh bets and prefer to wait for this week's key data/event risks.

The latest US consumer inflation figures are due for release on Wednesday, which will be followed by the Bank of Canada monetary policy decision. Traders will further take cues from the US monthly Retail Sales data and Prelim Michigan Consumer Sentiment on Friday. This will play a key role in driving the near-term USD demand. This, along with oil price dynamics, would help investors to determine the next leg of a directional move for the USD/CAD pair.

Technical levels to watch