USD/CAD struggles near two-week low, below 1.2800 mark amid weaker USD/rising oil prices

• A combination of factors prompted fresh selling around USD/CAD on Monday.
• Rising oil prices underpinned the loonie and exerted pressure amid a weaker USD.
• The prevalent risk-on mood dragged the safe-haven USD to a fresh monthly low.

The USD/CAD pair came under renewed selling pressure on Monday and dropped back closer to over a two-week low touched the previous session. The pair maintained its offered tone through the first half of the European session and was last seen hovering near the 1.2780-1.2785 region, down nearly 0.40% for the day.

As China prepares to ease COVID-19 lockdowns after two months, a tight global supply outlook acted as a tailwind for crude oil prices, which, in turn, underpinned the commodity-linked loonie. On the other hand, the risk-on impulse weighed on the safe-haven US dollar and exerted some downward pressure on the USD/CAD pair.

Investors turned optimistic amid hopes that loosening COVID-19 lockdowns in China could boost the global economy. This was evident from a generally positive tone around the equity markets, which drove flows away from traditional safe-haven assets and dragged the USD to a fresh monthly low on the first day of a new week.

That said, expectations would need to take more drastic action to bring inflation under control, along with an uptick in the US Treasury bond yields, should limit any further USD losses. This, in turn, warrants some caution for aggressive bearish traders ahead of the release of the latest FOMC meeting minutes on Wednesday.

Apart from this, important US macro data scheduled for release during the latter half of the week would influence the near-term USD demand and provide a fresh impetus to the USD/CAD pair. In the meantime, traders will take cues from the broader market risk sentiment and oil price dynamics for short-term opportunities amid absent economic data.

Technical levels to watch