USD/CAD eases from weekly high touched on Thursday, remains below 1.3700 mark

• USD/CAD meets with some supply on Friday, though the downside seems limited.
• An uptick in Oil prices underpins the Loonie and exerts pressure amid a softer USD.
• Bets for one more Fed rate hike in 2023 should limit losses for the buck and the pair.

The USD/CAD pair edges lower during the Asian session on Friday and erodes a part of the previous day's strong move up to the 1.3700 mark, or the weekly top. The pair currently trades around the 1.3680-1.3675 area and is pressured by a combination of factors, though the downside seems cushioned.

A modest uptick in Crude Oil prices is seen underpinning the commodity-linked Loonie, which, along with a mildly softer tone surrounding the US Dollar (USD) acts as a headwind for the USD/CAD pair. The recent dovish remarks by several Federal Reserve (Fed) officials suggested that the US central bank is nearing the end of its rate-hiking cycle. This, in turn, keeps a lid on the US Treasury bond yields and fails to assist the USD to capitalize on Thursday's US CPI-inspired strong recovery move from over a two-week low.

Any meaningful USD losses, meanwhile, seem limited in the wake of reviving bets for further policy tightening by the Federal Reserve (Fed), which, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair. Both the headline and the Core CPI in the US remained above the Fed's 2% target, reviving bets for at least one more Fed rate hike move by the end of this year. This should limit the downside for the US bond yields and warrants some caution before placing fresh bearish bets around the USD.

Apart from this, receding fears about potential supply disruptions due to the Israel-Palestinian conflict should cap the upside for Crude Oil prices on the back of worries that a global economic slowdown will dent fuel demand. This further validates the near-term positive outlook for the USD/CAD pair and suggests that the path of least resistance is to the upside. Traders now look to Philadelphia Fed President Patrick Harker's speech, which, along with the Preliminary Michigan Consumer Sentiment Index, will drive the USD demand.

Technical levels to watch