USD/CAD holds steady near multi-week top, above 1.2800 ahead of US Q1 GDP

• USD/CAD held steady near the multi-week high amid sustained USD buying.
• The prospects for rapid Fed rate hikes continued underpinning the greenback.
• The deteriorating global economic outlook also acted as a tailwind for the buck.

The USD/CAD pair seesawed between tepid gains/minor losses through the first half of the European session and was last seen trading with a mild positive bias, around the 1.2835 region.

The pair continued with its struggle to gain any meaningful traction for the second successive day on Thursday and oscillated in range just below the six-week high touched the previous day. The downside, however, remains cushioned amid the prevalent strong bullish sentiment surrounding the US dollar, bolstered by the prospects for aggressive policy tightening by the Fed.

The Fed is expected to hike interest rates by 50 bps when it meets on May 3-4, and again in June and July, and ultimately lift rates to around 3.0% by the end of the year. The bets were reaffirmed by comments from influential FOMC members last week, including Fed Chair Jerome Powell. Apart from this, the deteriorating global economic outlook pushed the USD to a five-year high.

Investors now seem worried that a brewing energy crisis in Europe could impact the economic growth in the region. Moreover, the latest COVID-19 outbreak and prolonged lockdowns in China have been fueling fears about stalling global growth. This, in turn, was seen as another factor that boosted the greenback's reserve currency status and acted as a tailwind for the USD/CAD pair.

That said, the risk-on impulse - as depicted by strong rally in the equity markets - kept a lid on any further gains for the buck. Meanwhile, an escalation in the Russia-Ukraine conflict continued lending some support to crude oil prices. This, in turn, underpinned the commodity-linked loonie and further contributed to capping the upside for the USD/CAD pair, at least for the time being.

Market participants now look forward to the US economic docket, highlighting the release of the Advance Q1 GDP report and the usual Weekly Initial Jobless Claims. Traders will further take cues from the broader market risk sentiment, which will influence the USD. This, along with oil price dynamics, should produce some short-term opportunities around the USD/CAD pair.

Technical levels to watch