USD/CAD remains subdued below 200 & 50DMAs in low 1.2600s with focus on upcoming risk events

• In a subdued, holiday-thinned start to the trading week, USD/CAD has traded in thin ranges just above the 1.2600 level.
• Higher oil prices have prevented the pair from being lifted above its 200 and 50DMAs by the buoyant buck.
• Focus this week will be on Fed Chair Powell’s Thursday speech and on Wednesday Canadian CPI figures.

In a subdued start to the trading week with many market participants still away for Easter holiday celebrations and key market closures in Europe and some Asia Pacific regions, USD/CAD has traded in thin ranges just above the 1.2600 level. The pair has been supported by broad strength in the US dollar amid buoyancy in US yields as traders price in a more aggressive Fed tightening cycle and, at current levels in the 1.2610s, trades a modest 0.1% higher.

A sharp rise in global oil prices as a result of pessimism regarding a potential Russo-Ukraine peace deal as fighting intensifies as well as OPEC supply concerns amid new outages in Libya has prevented the pair from breaking above its 200 and 50-Day Moving Averages at the 1.2623 and 1.2653 levels. For now, these technical levels look likely to prevent the pair from testing last week’s peaks in the 1.2675 area.

A key focus for USD/CAD traders this week will be on whether key trends established on Monday continue through the week; i.e. can oil and the US dollar continue recent upside momentum. Regarding the latter, Fed Chair Jerome Powell will be speaking at this week’s IMF/World Bank meetings on Thursday and is expected to solidify expectations for 50 bps rate hikes at upcoming Fed meetings.

Whilst this does present an upside risk to USD/CAD, Canadian March Consumer Price Inflation figures are due on Wednesday. If they show a 0.9% MoM rise in the headline price index, as expected, this should solidify expectations that the BoC will follow up last week’s 50 bps rate hike (which took rates to 1.0%) at its next meeting in June. The BoC’s relatively hawkish stance should thus be enough to shield the loonie from the buck’s advances, for now.