USD/CAD trims a part of its intraday gains, holds above mid-1.2500s amid stronger USD

• USD/CAD attracted some buying on Thursday amid a broad-based USD strength.
• An uptick in oil prices underpinned the loonie and capped the upside for the pair.
• The focus remains on fresh developments surrounding the Russia-Ukraine saga.

The USD/CAD pair quickly retreated a few pips from the daily high touched in the last hour and was last seen trading with modest intraday gains, around the 1.2565-1.2570 region.

The pair gained some positive traction during the first half of the trading on Thursday and was supported by a broad-based US dollar strength, underpinned by the Fed's hawkish outlook. Growing acceptance that the Fed will adopt a more aggressive policy response to combat stubbornly high inflation turned out to be a key factor that acted as a tailwind for the buck.

In fact, a slew of influential FOMC members, including Fed Chair Jerome Powell, raised the possibility of a 50 bps rate hike at the upcoming policy meeting in May. This, along with concerns that surging oil prices might put upward pressure on the already high inflation, pushed the US Treasury bond yields higher. The combination of factors continued to underpin the greenback.

That said, an uptick in crude oil prices underpinned the commodity-linked loonie and kept a lid on any meaningful upside for the USD/CAD pair. The markets remain worried about the lack of progress in the Russia-Ukraine peace negotiations. Apart from this, the stoppage of crude exports from Kazakhstan's Caspian Pipeline Consortium (CPC) terminal underpinned crude oil prices.

The mixed fundamental backdrop and the lack of any follow-through buying warrant some caution before confirming that the recent pullback from the 1.2900 mark, or the YTD top has run its course. Market participants now look forward to the US economic docket, featuring the release of the flash PMI prints, Durable Goods Orders and the usual Weekly Initial Jobless Claims.

The focus, however, will remain on geopolitics amid expectations that US President Joe Biden will announce new sanctions targeting Russian politicians. The incoming headlines will influence the broader market risk sentiment and drive the USD demand. Traders will further take cues from oil price dynamics for some short-term opportunities around the USD/CAD pair.

Technical levels to watch