USD/CAD slides to 1.2675-70 region, back closer to weekly low amid softer USD

• USD/CAD came under fresh selling pressure on Friday amid renewed USD weakness.
• A recovery in the global risk sentiment undermined the greenback’s safe-haven status.
• Retreating crude oil prices did little to weigh on the loonie or lend support to the pair.

The USD/CAD pair edged lower through the early European session and dropped to a fresh daily low, around the 1.2675 region in the last hour.

The pair met with a fresh supply on the last day of the week and reversed the overnight modest gains amid a softer tone surrounding the US dollar. Hopes for a diplomatic resolution of the East-West conflict over Ukraine led to a goodish recovery in the risk sentiment and undermined the greenback's safe-haven status.

The recent volatility in the equity markets subsided after the US Secretary of State Antony Blinken accepted an invitation to meet Russian Foreign Minister Sergei Lavrov late next week. This raised hopes for a diplomatic solution to the Ukraine crisis and drove investors away from traditional safe-haven assets, including the USD.

Adding to this, the uncertainty about the pace of the Fed's tightening cycle to combat stubbornly high inflation turned out to be another factor that weighed on the buck. In fact, the minutes of the January 25-26 FOMC meeting, released on Wednesday, failed to reinforce market expectations for a 50 bps rate hike in March.

That said, most Fed officials agreed that it would be appropriate to remove policy accommodation at a faster pace than anticipated if inflation does not move down as they expect. This, along with fears of an imminent Russian invasion of Ukraine, should act as a tailwind for the greenback and lend some support to the USD/CAD pair.

Apart from this, retreating oil prices could undermine the commodity-linked loonie and further warrant some caution before placing aggressive bearish bets around the USD/CAD pair. Hence, any subsequent decline is more likely to find support near the 1.2650 area, which is followed by the monthly low, around the 1.2635 region.

Market participants now look forward to the US Existing Home Sales data, due later during the early North American session. This, along with fresh geopolitical developments and the broader market risk sentiment, will influence the USD. Traders will further take cues from oil price dynamics for some impetus around the USD/CAD pair.

Technical levels to watch