USD/CAD retreats from yearly high amid firmer oil but bulls stay hopeful above 1.2860

• USD/CAD consolidates recent gains around the highest levels since late 2021.
• EU’s oil embargo on Russia favors WTI crude oil prices, as well as the CAD.
• Firmer yields, risk-aversion challenge downside momentum ahead of Wednesday’s FOMC.
• BOC’s Rogers, US Factory Orders will direct intraday moves.

USD/CAD bulls step back after refreshing the yearly high as oil prices, Canada’s key export, remains firmer amid escalating geopolitical tensions surrounding Russia. Also weighing on the Loonie pair are the latest US data, as well as the market’s consolidation ahead of the key Fed meeting. That being said, the quote eases to 1.2875 by the press time of the early Asian session on Tuesday.

WTI crude oil prices rose 0.80% to regain the $105.00 level, around $105.10 at the latest, as Germany backs the European Union’s (EU) total ban on Russian oil. The bloc’s powerhouse previously ruled out any such actions amid fears of economic recession. However, Moscow’s escalating military invasion of Ukraine might have played the role in pushing Berling toward the move.

Other than the oil prices, a pullback in the US Treasury yields after they rose to the fresh high in December 2018, as well as softer US data, can also be held responsible for the USD/CAD pair’s latest weakness.

The US 10-year Treasury yields cross the 3.0% benchmark for the first time in over three years before ending Monday’s North American trading session at around 2.97%. It’s worth noting that a holiday in Japan will restrict bond moves in Asia and can exert downside pressure on the US dollar due to the absence of yields’ momentum.

It should be noted that the US ISM Manufacturing PMI for April eased to 55.4 versus 57.6 market forecast and 57.1 prior readings while S&P Manufacturing PMI also softened to 59.2 from 59.7 expected and prior.

Looking forward, a speech from Bank of Canada (BOC) Senior Deputy Governor Carolyn Rogers will join the US Factory Orders for March, expected 1.1% versus -0.5% prior, to entertain short-term USD/CAD traders.

Technical analysis

Given the successful break of a downward sloping trend line from December 2021, around 1.2860 by the press time, USD/CAD prices are ready to aim for the 1.3000 threshold, with the late 2021 peak of 1.2966 likely acting as an intermediate halt.