USD/CAD rebounds from 50 DMA amid bearish oil prices, weaker USD might cap gains

• USD/CAD bounces off 50 DMA support and recovers a part of the overnight losses.
• Bearish crude oil prices undermine the Loonie and offer some support to the major.
• A combination of factors weighs on the USD and might cap the upside for the pair.

The USD/CAD pair manages to defend the 50-day SMA and attracts some buyers near the 1.3570-1.3565 area on the last day of the week. Spot prices move back above the 1.3600 mark during the first half of the European session and reverse a part of the previous day's retracement slide from a one-month high.

Crude oil prices languish near the YTD low amid worries that a deeper global economic downturn will dent fuel demand. Apart from this, a dovish 50 bps rate hike by the Bank of Canada earlier this week is seen undermining the commodity-linked Loonie and acting as a tailwind for the USD/CAD pair. The upside potential, meanwhile, seems limited amid the prevalent selling bias around the US Dollar.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, has now dropped back closer to a multi-month low and is pressured by a combination of factors. The latest optimism over the easing of COVID-19 curbs in China remains supportive of the recent recovery in the global risk sentiment. This, along with bets for less aggressive Fed rate hikes, weighs on the USD.

The markets seem convinced that the Fed will slow the pace of its policy tightening and are pricing in a relatively smaller 50 bps lift-off at next week's FOMC meeting. The expectations contribute to the ongoing decline in the US Treasury bond yields, which might hold back the USD bulls on the defensive. This, in turn, might keep a lid on any further gains for the USD/CAD pair, at least for the time being.

Moving ahead, Friday's US economic docket features the release of the Producer Price Index (PPI) and the Prelim Michigan Consumer Sentiment Index. This, along with the US bond yields and the broader risk sentiment, might influence the USD and provide some impetus to the USD/CAD pair. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the major.

Technical levels to watch