USD/CAD stuck in a narrow range above mid-1.3100s, rising Oil prices act as a headwind

The USD/CAD pair struggles to capitalize on the previous day's late rebound from the 1.3120-1.3115 region, or the weekly low and oscillates in a narrow band through the Asian session on Friday. Spot prices currently trade around the 1.3165-1.3170 area, nearly unchanged for the day.

Crude Oil prices gain some positive traction for the second straight day, which underpins the commodity-linked Loonie and turns out to be a key factor acting as a headwind for the USD/CAD pair. Hopes that new stimulus measures from China will boost fuel demand in the world's largest oil importer, along with the prospect of tighter global supplies, continue to act as a tailwind for the black liquid.

Apart from this, subdued US Dollar (USD) price action further contributes to capping the upside for the USD/CAD pair. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, consolidates the overnight strong gains to over a one-week high and for now, seems to have stalled the recent goodish recovery move from its lowest level since April 2022 touched earlier this week.

The downside for the USD, however, seems limited in the wake of the upbeat US macro data released on Thursday, which continues to flash strength in the US labour market and supports prospects for further tightening by the Federal Reserve (Fed). Furthermore, investors remain sceptic about whether the Fed will commit to a more dovish policy stance or stick to its forecast for a 50 bps rate hike this year.

This, in turn, might hold back traders from placing aggressive directional bets ahead of the crucial FOMC monetary policy decision, scheduled to be announced at the end of a two-day meeting on Wednesday. In the meantime, traders on Friday will take cues from the release of the monthly Canadian Retail Sales data, which might provide some impetus to the USD/CAD pair later during the early North American session.

Nevertheless, spot prices seem poised to end in the red for the second straight week and remain well within the striking distance of the lowest level since September 2022, just below the 1.3100 round-figure mark touched last week.

Technical levels to watch