USD/CAD bulls seize back control, eyeing YTD peak amid stronger USD/falling oil prices

• A combination of factors assisted USD/CAD to regain strong positive traction on Thursday.
• Aggressive Fed rate hike bets, recession fears lifted the greenback to a fresh 20-year high.
• A slump in crude oil prices undermined the loonie and contributed to the strong move up.

The USD/CAD pair regained positive traction on Thursday and reversed the overnight losses that followed the Bank of Canada policy decision. The intraday buying picked up pace during the first half of the European session and lifted spot prices to over a one-week high, back above mid-1.3000s.

The market reaction to the BoC's surprise move to hike interest rates by 100 bps turned out to be short-lived amid the relentless US dollar buying, bolstered by hawkish Fed expectations. Wednesday's red-hot US consumer inflation figures cemented the case for a more aggressive policy tightening by the Fed. In fact, the markets have now started pricing in the possibility of a historic 100 bps rate hike move later this month.

The prospects for further interest rate hikes, along with the ongoing Russia-Ukraine war and fresh COVID-19 curbs in China, have been fueling fears about global recessions. This continued weighing on investors' sentiment, which was evident from an extended selloff in the equity markets. The anti-risk flow was seen as another factor that boosted the greenback's safe-haven status and pushed it to a fresh two-decade high.

The worsening global economic outlook has raised concerns about the fuel demand outlook and dragged crude oil prices to a fresh multi-month low. This, in turn, undermined the commodity-linked loonie and further contributed to the USD/CAD pair's strong intraday positive move. Bulls now await sustained strength beyond the 1.3080-1.3085 supply zone, or the YTD peak, before positioning for a further near-term appreciating move.

Technical levels to watch