USD/CAD clings to strong intraday gains near multi-week high, just below 1.2700 mark

• A combination of supporting factors pushed USD/CAD to a multi-week high on Friday.
• Weaker oil prices undermined the loonie and remained supportive amid stronger USD.
• The fundamental backdrop favour bulls and supports prospects for additional gains.

The USD/CAD pair maintained its strong bid tone through the early North American session and was last seen trading near the 1.2680-1.2685 region, or the highest level since March 17.

The pair built on the previous day's solid rebound of over 130 pips from over a two-week low and gained strong follow-through traction for the second successive day on Friday. The momentum pushed the USD/CAD pair beyond a technically significant 200-day SMA and was sponsored by a combination of factors. The US dollar shot to a fresh 25-month high amid the prospects for a more aggressive policy tightening by the Fed. On the other hand, weaker crude oil prices undermined the commodity-linked loonie and acted as a tailwind for spot prices.

Fed Chair Jerome Powell sent a clear hawkish message on Thursday and said that a 50 bps interest rate increase will be on the table at the upcoming FOMC policy meeting on May 3-4. Powell also hinted at consecutive increases this year and the market was quick to price in three jumbo rate hikes this year. This, in turn, pushed the yield on the rate-sensitive 5-year US government bond above 3% for the first time since 2018. Moreover, the 10-year real yields turned positive for the first time in two years and continued boosting the buck.

Apart from this, the prevalent risk-off mood - as depicted by a generally weaker tone around the equity markets - was seen as another factor that benefitted the safe-haven greenback. Bulls seemed rather unaffected by better-than-expected Canadian Retail Sales data, which rose by 0.1% MoM in March. This, however, marked a sharp deceleration from February's strong 3.3% MoM growth and did little to provide any respite to the Canadian dollar. Hence, a further intraday appreciating move, beyond the 1.2700 mark, remains a distinct possibility.

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