USD/CAD remains depressed below 1.3000 amid modest USD weakness, uptick in oil prices

• A combination of factors prompted fresh selling around USD/CAD on Friday.
• The risk-on impulse weighed the safe-haven USD and exerted some pressure.
• An uptick in oil prices underpinned the loonie and added to the selling bias.

The USD/CAD pair extended the overnight late pullback from the 1.3015 region and witnessed some follow-through selling on Friday. The pair remained on the defensive through the early European session and was last seen trading near the daily low, around the 1.2980-1.2975 area.

A turnaround in the global risk sentiment - as depicted by a generally positive tone around the equity markets - prompted some selling around the safe-haven US dollar. Apart from this, a modest uptick in crude oil prices underpinned the commodity-linked loonie and exerted downward pressure on the USD/CAD pair.

The Canadian dollar drew additional support from stronger domestic consumer inflation figures released on Wednesday, which lifted bets for a 75 bps rate hike move by the Bank of Canada in July. That said, hawkish Fed expectations should continue to lend support to the greenback and limit losses for the USD/CAD pair.

The markets seem convinced that the Fed would stick to its aggressive policy tightening path and hike interest rates by 75 bps in July to curb soaring inflation. This, in turn, warrants some caution for aggressive bearish traders before traders start positioning for any further depreciating move for the USD/CAD pair.

Market participants now look forward to a scheduled speech by St. Louis Fed President James Bullard, which along with the release of the revised Michigan Consumer Sentiment Index and New Home Sales data might influence the USD. Apart from this, oil price dynamics might provide some impetus to the USD/CAD pair.

Technical levels to watch