USD/CAD reverses back under 1.2700 as energy prices rally, market mood improves

• USD/CAD has seen two-way trade on Monday but is now back under 1.2700 as risk appetite improves.
• While geopolitics will be a key determinant of USD/CAD sentiment going forward, this week’s data calendar is also very busy.
• Highlights include the BoC rate decision on Wednesday, Fed Chair Powell’s testimony before Congress and the February US jobs report.

USD/CAD has been choppy and mixed on Monday as investors digest the latest wave of Western sanctions against Russia for its military incursion into Ukraine, though the bears seem to have gained the upper hand for now. The pair briefly surpassed the 1.2800 level during Asia Pacific trade as FX markets began the week in a risk-off mood amid fears of contagion from a sanction-induced Russian economic collapse and energy supply disruption. But as energy prices rallied and the market’s broader mood improved amid hopes that Russia/Ukraine talks might yield a ceasefire, the pair fell sharply to current levels near 1.2690, where its now trades about 0.1% lower on the day.

That leaves USD/CAD not too far above this month’s lows in the 1.2630s, quite a turnaround from its highs just three days ago near 1.2900. Indeed, the pair trades roughly 1.5% lower versus last week’s highs and tailwinds from energy prices appear to be a major factor in the loonie’s resilience. Geopolitics and the ongoing Russo-Ukraine war will be a key determinant of USD/CAD sentiment going forward, but traders will also be keeping an eye on a very busy economic calendar this week.

Canadian Q4 GDP figures will be released on Tuesday, one day prior to an expected 25bps rate hike from the Bank of Canada on Wednesday. Meanwhile, US dollar traders will be keeping an eye on Fed speak with Fed Chair Jerome Powell testifying before Congress on Wednesday and Thursday and plenty of other Fed policymakers hitting the wires. Datawise, the February US jobs report is due on Friday, ahead of the February ISM PMI surveys on Tuesday and Thursday.