Lower oil prices have weakened the loonie, and served as a tailwind to a stronger USD.
Investors are looking forward to Canadian Retail Sales and flash US PMIs for an impetus.
The USD/CAD pair saw intraday gains, and it reached its highest level since March 17th, around the 1.2680 area during the first half European session.
The USD/CAD pair was able to capitalize on its overnight solid rebound from more than two weeks lows and gain strong follow through traction on Friday. The commodity-linked loonie was weakened by a softer tone about crude oil prices. This was combined with broad-based US Dollar strength, which acted as a tailwind to spot prices.
Investors are still concerned about slowing global growth and fuel demand following the COVID-19 lockdowns in China, the largest oil importer in the world. To a greater extent, this overshadowed concerns regarding tight global supply and a possible EU embargo on Russian natural gas. This in turn prompted new selling of crude oil.
The US dollar, on the other hand, rose to its highest level since March 2020. This support continues to be drawn from expectations of a more aggressive US central bank policy. Fed Chair Jerome Powell confirmed that a rate hike of 50 bps would be possible at the May 3-4 policy meeting and hinted at future increases.
The markets quickly reacted and began pricing in three consecutive 50 bps rate increases, which in turn pushed the rate-sensitive 5-year US bond above 3% for only the second time since 2018. Friday saw a continuation of the selloff in US fixed income markets. This, combined with the risk-off impulse, boosted demand for safe-haven currencies.
The flash US PMI print and Canadian monthly Retail Sales are the next catalyst for market participants. The USD will be affected by the US bond yields as well as the wider market risk sentiment. For short-term opportunities, traders will also take cues form the oil price dynamics to determine USD/CAD pairs.