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USD/CAD comes under some selling pressure on Monday and extends Friday’s retracement slide.
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Recovering oil prices underpin the loonie and exert pressure on USD price action.
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Recession fears, hawkish Fed expectations could limit the USD losses and lend support to the pair.
The USD/CAD pair attracts some sellers in the vicinity of the 1.3500 psychological mark on Monday and extends its steady descent through the first half of the European session. Spot prices retreat further from the highest level since January 6 touched on Friday and drop to the 1.3455 area, or a fresh daily low in the last hour.
Crude Oil prices gain some positive traction and for now, seem to have snapped a five-day losing streak to over a one-week low touched on Friday. This, in turn, underpins the commodity-linked Loonie and acts as a headwind for the USD/CAD pair amid subdued US Dollar price action. That said, a combination of factors supports prospects for the emergence of some dip-buying at lower levels and warrants caution before positioning for deeper losses.
Concerns that rapidly rising borrowing costs will dampen economic growth and fuel demand should put a lid on further upside for the black liquid. In addition, strong expectations that the Fed will stick to its dovish stance favor USD bulls. In fact, markets are now pricing in at least a 25 bps lift-off to the next two FOMC meetings in March and May. This, in turn, validates the positive outlook for the USD/CAD pair.
Traders also seem reluctant amid relatively thin trading volumes on the back of a holiday in the US and Canada. Furthermore, investors are more likely to wait for the latest FOMC meeting minutes, due for release on Wednesday, before placing fresh directional bets. Hence, strong follow-through selling is needed to confirm that the USD/CAD pair’s recent positive move witnessed over the past week or so has run its course.
Technical levels to watch
USD/CAD
