USD/CAD eases from two-month high, downside seems cushioned amid Russia-Ukraine stand-off

• USD/CAD broke out of a multi-week-old trading range and shot to a near two-month high.
• Russia-Ukraine crisis boosted the safe-haven USD and remained supportive of the move.
• Rallying oil prices extended support to the loonie and capped gains, for the time being.

The USD/CAD pair retreated a few pips from a near two-month high set during the mid-European session and was last seen trading around the 1.2820 region, still up 0.70% for the day.

The brutal market reaction to Russian President Vladimir Putin's announcement on Thursday to launch a special military operation in Ukraine forced investors to take refuge in the safe-haven US dollar. This, in turn, assisted the USD/CAD pair to gain strong positive traction and breakout of a near four-week-old trading range.

Since the pre-dawn attack, Russian forces have reportedly destroyed Ukrainian military bases and air defence systems. Missiles have targeted major Ukrainian cities, including the capital Kyiv, and explosions were seen in cities along the coast. Moreover, Russian troops continued to cross the Ukrainian border from several directions.

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The worsening situation in Ukraine kept investors on the edge and pushed the greenback back closer to the 2022 high touched in January. That said, a blowout rally in crude oil prices extended some support to the commodity-liked loonie and turned out to be the only factor that kept iid on any further gains for the USD/CAD pair, for the time being.

On the economic data front, the Prelim US Q4 report showed that the economy expanded by 7.0% during the fourth quarter of 2021, matching the original estimates. Separately, the US Weekly Initial Jobless Claims fell to 232K the last week from the 249K previous. The data did little to influence the USD or provide any impetus to the USD/CAD pair.

Hence, the market focus will remain glued to developments surrounding the Russia-Ukraine saga, which will play a key role in driving the risk sentiment and the USD demand. Nevertheless, sustained break through the aforementioned trading range hurdle, around the 1.2780-1.2785 region, supports prospects for additional gains for the USD/CAD pair.

Technical levels to watch