USD/CAD retreats back to 1.2800 amid rising oil prices/subdued USD demand

• USD/CAD struggled to capitalize on its early uptick and was pressured by a combination of factors.
• The risk-on mood undermined the safe-haven USD and acted as a headwind amid rising oil prices.
• The focus will remain glued to the Russia-Ukraine conflict ahead of the US consumer inflation data.

The USD/CAD pair surrendered a major part of its modest intraday gains and was last seen trading just above the 1.2800 mark, up only 0.05% for the day.

The pair attracted some buying during the early part of the trading on Thursday, though a combination of factors held back bulls from placing aggressive bets and capped the upside. A generally positive tone around the equity markets weighed on the safe-haven US dollar. On the other hand, modest rise in crude oil prices underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair.

The market sentiment improved drastically amid expectations for a diplomatic solution to end the war in Ukraine. In fact, Russian Foreign Minister Sergey Lavrov and his Ukrainian counterpart Dmytro Kuleba have already arrived in Turkey for ceasefire negotiations. This would be the first talk between the two officials since Russia's invasion of Ukraine and raised hopes for a compromise to resolve the conflict.

The latest development provided much-needed respite to investors and triggered a fresh wave of the global risk-on trade, which, in turn, drove flows way from traditional safe-haven assets. On the other hand, the Candian drew support from a further recovery in crude oil prices from the over one-week low touched the previous day. This was seen as another factor that capped gains for the USD/CAD pair.

That said, the risk of a further escalation in tensions between Russian and Western powers could keep a lid on the optimistic move in the markets. Moreover, worries of a major inflationary shock amid the rapidly deteriorating global economic should extend some support to the greenback and the USD/CAD pair. Hence, the market focus now shifts to Thursday's release of the latest US CPI report.

Apart from this, the incoming headlines surrounding the Russia-Ukraine saga will drive demand for the safe-haven USD and also influence oil price dynamics. This, in turn, should provide some impetus to the USD/CAD pair and allow traders to grab some short-term opportunities.

Technical levels to watch