USD/CAD bleeds out as risk sentiment picks up over prospects of US/Russia summit

• USD/CAD is under pressure again as markets move into consolidation. 
• Oil prices and Fed speakers in focus as markets wait in anticipation of a US/Russia summit. 

USD/CAD is back to trading flat in the Asian start to the week ahead of holiday markets in the US and following some initial jitters over the Russian and Ukraine risks. At the time of writing, USD/CAD is oscillating near 1.2737 after travelling between 1.2731 and 1.2760. 

The risk-averse mood in markets persisted Friday, Ukraine and Federal Reserve tightening remaining the main concerns. For CAD, in particular, there has been a focus also on the price of oil and inflation. Weighing on the loonie, crude oil recorded its first weekly loss amid renewed concerns of Iranian oil hitting the market. This offset the risks of disruption to Russia’s oil supply if it invades Ukraine.

Over the weekend, the US ramped up warnings of a possible attack, however,  Russia reiterated no invasion was underway and French President Emmanuel Macron was reported saying that there was the possibility of a summit between US president Joe Biden and Russia's president, Vladimir Putin. This was later confirmed by the White House, albeit warning at the same time that the US believes an invasion is imminent and that there can be no summit if Russia were to invade. Meanwhile, the US Secretary of State Antony Blinken and Russia’s Foreign Minister Sergey Lavrov have also agreed to meet for talks this week.

Will sanctions hit Russian oil?

Whilst there is plenty of uncertainty about what Russia may do, there is even more uncertainty over how the West may respond. The US is prepared to impose swift and severe consequences if Russia invades and it will retaliate with sanctions and the oil markets is anxious that these could impact Russian crude oil exports. Given that Russia is the second-largest crude oil exporter, the Canadian dollar would stand to gain on higher oil prices.

All eyes on the Fedspeak

Meanwhile, it will be all ears to the ground this week for Fed speakers. Analysts at Westpac have the lineup: ''Chicago Fed President Evans (dove) and Governor Waller (hawk) will take part in a policy panel concerning the Fed’s new policy strategy. Cleveland Fed President Mester (moderate hawk) and New York Fed President Williams (centrist) will both discuss the economic outlook at different events. Governor Brainard (nominee for Fed Vice Chair) will speak on central bank digital currencies.''