USD/CAD recovers further from YTD low, climbs to three-day high near 1.2530-35 area

• USD/CAD caught aggressive bids on Thursday and was supported by a combination of factors.
• A slump in oil prices undermined the loonie and extended support amid resurgent USD demand.
• Traders now eye the OPEC+ meeting, US/Canadian macro data, geopolitics for a fresh impetus.

The USD/CAD pair built on its steady intraday ascent through the first half of the European session and climbed to a three-day peak, around the 1.2530-1.2535 region in the last hour.

A combination of supporting factors assisted the USD/CAD pair to regain positive traction on Thursday and recover further from its lowest level since November 2021 touched in the previous day. A sharp fall in crude oil prices undermined the commodity-linked loonie and acted as a tailwind amid strong pickup in the US dollar demand.

Reports that the US is considering a massive release of up to 180 million barrels from its strategic petroleum reserve (SPR) over several months triggered a steep decline in crude oil prices. Apart from this, fears that fresh COVID-19 restrictions in China could impact fuel further exerted downward pressure on the black liquid.

On the other hand, expectations for aggressive policy tightening by the Fed, along with fading hopes for diplomacy in Ukraine assisted the USD to reverse the overnight slide to a nearly two-week low. In fact, the markets seem convinced that the Fed would deliver a 50 bps rate hike at the next two meetings to combat high inflation.

The fundamental backdrop favours bulls and supports prospects for a further intraday appreciating move, though traders preferred to wait for important macro releases from the US and Canada. Thursday's economic docket highlights the US Core PCE Price Index and the monthly Canadian GDP print, due later during the early North American session.

Traders will take cues from the OPEC+ meeting, which, along with fresh developments surrounding the Russia-Ukraine saga will influence oil price dynamics. Apart from this, the US bond yields and the broader market risk sentiment, will drive the USD demand and produce short-term trading opportunities around the USD/CAD pair.

Technical levels to watch