USD/CAD drops to mid-1.2800s amid bullish oil prices, focus remains on Fed’s Powell

The USD/CAD pair struggled to capitalize on its modest intraday gains and met with a fresh supply near the 1.2890 region on Wednesday. The intraday downfall - marking the fourth successive day of a slide - dragged spot prices to a fresh daily low, around the 1.2850-1.2845 region during the mid-European session.

Crude oil prices reversed an intraday dip and shot to a fresh one-and-half-week high amid concerns about tight global supplies, which offset worries about a weaker global economy. The Group of Seven (G7) economic powers agreed on Tuesday to explore price caps on imports of Russian oil and gas. Furthermore, Saudi Arabia and the United Arab Emirates reportedly would not be able to raise output significantly to make up for the lost Russian supply. This, in turn, acted as a tailwind for the black liquid, which underpinned the commodity-linked loonie and capped the upside for the USD/CAD pair.

On the other hand, a fresh leg down in the US Treasury bond yields held back the US dollar bulls from placing aggressive bets. This was seen as another factor that exerted some downward pressure on the USD/CAD pair. That said, the prevalent cautious mood around the equity markets - amid growing recession fears - continued lending support to the safe-haven buck and should limit any deeper losses for the major. Traders might also be reluctant to place aggressive bets ahead of Fed Chair Jerome Powell's speech at the ECB forum in Sintra, Portugal, later during the early North American session.

Given that market participants remains divided about the prospects for more aggressive Fed rate hikes, Powell's comments will be scrutinized for clues about the policy tightening path. This will play a key role in driving demand for the USD in the near term. Apart from this, traders will take cues from oil price dynamics to determine the next leg of a directional move for the USD/CAD pair.

Technical levels to watch