The USD/CAD pair attracts fresh selling on Wednesday following an early uptick to the 1.3410 area and turns lower for the second successive day. The steady intraday descent drags spot prices to a fresh weekly low, around mid-1.3300s, during the first half of the European session and is sponsored by a combination of factors.
Crude oil prices climb to the highest level since early December amid the optimism that the easing of strict COVID-19 curbs in China will boost fuel demand. This, in turn, underpins the commodity-linked Loonie, which, along with the emergence of heavy intraday selling around the US Dollar, exerts some downward pressure on the USD/CAD pair.
In fact, the USD Index, which tracks the greenback’s performance against a basket of currencies, fails to preserve its strong intraday gains amid bets for a less aggressive policy tightening by the Fed. The markets now seem convinced that the Fed will soften its stance and have been pricing in a smaller 25 bps rate hike in February.
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The bets were reaffirmed by the US CPI report released last week, which pointed to signs of easing inflationary pressure. This led to a fresh leg down in the US Treasury bond yields and is seen weighing heavily on the greenback, dragging the USD/CAD pair back closer to its lowest level since November 25 touched on Friday.
Market participants now look to the US economic docket, highlighting the release of the Producer Price Index and monthly Retail Sales later during the early North American session. This, along with speeches by influential FOMC members, the US bond yields and the broader market risk sentiment, will drive the USD demand.
Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair. Nevertheless, the fundamental backdrop seems tilted in favour of bears and suggests that the path of least resistance for spot prices is to the downside. Hence, any attempted recovery could get sold into.
