USD/CAD pares the biggest daily gains in a week above 1.2800 amid softer oil, strong yields

• USD/CAD bulls take a breather after snapping three-day downtrend, prices grind higher of late.
• Yields propel USD, oil renews two-week low on easing fears of supply crunch, chatters surrounding receding demand.
• Uncertainty surrounding Russia-Ukraine joins China’s covid breakout and hopes of faster monetary tightening to fuel USD/CAD.
• China Retail Sales, Industrial Production to provide immediate direction ahead of second-tier US/Canada economics, risk catalysts are the key.

USD/CAD hovers in a tight range above 1.2800 during early Tuesday morning in Asia, following the upbeat start to the week. The Loonie pair rose the most in one week the previous day, before the latest sidelined performance, as softer oil prices and strong US Treasury yields offered a double boost to the quote.

Market sentiment remained sour, despite the upbeat start of the week, as optimism surrounding the Ukraine-Russia peace ebbed by the end of Monday’s North American session. The latest updates suggest more European sanctions for Russia and the US allegations that China is up for providing military help to Moscow. Additionally, a halt in the peace talks, as well as news that Russia Belarus won’t pay for energy supplies in the US dollar also signaled that the three-week-old geopolitical event isn’t likely to end soon.

Other than the Moscow-Kyiv updates, China’s escalated measures to tame the Omicron spread, after witnessing the biggest daily infections since May 2020 also weighed on the market’s risk appetite.

Other than the risk catalysts that weighed on the commodities and underpinned the US dollar’s safe-haven demand, escalating hopes of the Fed’s faster rate-hike trajectory also propelled USD/CAD prices. As per the latest CME FedWatch Tool reading, there are over 90% probabilities for a 0.50% rate-lift during this week’s Federal Open Market Committee (FOMC).

That said, WTI crude oil, Canada’s main export item dropped over 6.0% to poke March 01 levels, around $102.30 by the press time. The black gold refreshed its 14-year high in the last week before closing in the red as concerns over the supply crunch eased.

Amid these plays, US 10-year Treasury yields rose 13 basis points (bps) to refresh 32-month high whereas the Wall Street benchmarks closed in the red despite an upbeat start.

Looking forward, USD/CAD traders may pay attention to China’s Retail Sales and Industrial Production data for February for immediate directions. However, major attention will be given to headlines from Russia and Ukraine.

Technical analysis

Sustained recovery from the 50-DMA level surrounding 1.2690 enables USD/CAD to regain the 1.2900 threshold. However, the pair’s further upside will be challenged by an ascending resistance line from late January, close to 1.2935 by the press time.