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USD/CAD slides closer to mid-1.3400s amid rebounding oil prices


20 February 2023

USD/CAD comes under some selling pressure on Monday and extends Frida’s retracement slide. Rebounding oil prices underpins the Loonie and exerts pressure amid subdued USD price action. 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.

Worries that rapidly rising borrowing costs will dampen economic growth and dent fuel demand should keep a lid on any further upside for the black liquid. Apart from this, firming expectations that the Fed will stick to its hawkish stance favours the USD bulls. In fact, the markets are now pricing in at least a 25 bps lift-off at 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.

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