USD/CAD climbs back closer to overnight swing high amid sliding oil prices, stronger USD

• USD/CAD gained traction for the second straight day and was supported by a combination of factors.
• Declining crude oil prices underpinned the loonie and acted as a tailwind amid sustained USD buying.
• Investors now look forward to the US monthly jobs report (NFP) for some meaningful trading impetus.

The USD/CAD pair edged higher through the early European session and climbed back closer to the overnight swing high, around the 1.2525 region in the last hour.

A combination of factors assisted the USD/CAD pair to gain traction for the second successive day on Friday, with bulls now looking to build on this week's recovery from the YTD low. Crude oil prices added to the overnight losses and continued losing ground through the first half of the trading on the last day of the week. This, in turn, undermined the commodity-linked loonie and acted as a tailwind for the major amid some follow-through US dollar buying interest.

The White House on Thursday announced a plan to release 1 million barrels of oil per day from the US Strategic Petroleum Reserve (SPR) over the next six months. The International Energy Agency (IEA) will also meet later this Friday to discuss a further emergency oil release of around 60 million barrels. This, along with fears that fresh COVID-19 restrictions in China could impact fuel demand, exerted downward pressure on oil prices and weighed on the Canadian dollar.

On the other hand, fading hopes for a de-escalation in the Ukraine war drove some haven flows towards the greenback, which was further supported by hawkish Fed expectations. In fact, the markets seem convinced that the Fed would adopt a more aggressive policy stance and hike interest rate by 100 bps over the next two policy meetings to combat stubbornly high inflation. The bets were reaffirmed by Thursday's release of the US Core PCE Price Index, which rose to 5.4% YoY in February.

The fundamental backdrop seems tilted in favour of bullish traders and supports prospects for a further near-term appreciating move for the USD/CAD pair. That said, investors might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the closely-watched US monthly jobs data. The popularly known NFP report is due for release later during the early North American session and will play a key role in driving the near-term USD price dynamics.

Apart from this, traders will take cues from fresh developments surrounding the Russia-Ukraine saga, which might influence crude oil prices. This, in turn, should provide some meaningful impetus to the USD/CAD pair and allow traders to grab short-term opportunities on the last day of the week.

Technical levels to watch