USD/CAD trades with modest losses, holds above 1.2800 ahead of US/Canadian jobs data

• USD/CAD attracted some selling on Friday and was pressured by a combination of factors.
• Rising oil prices underpinned the loonie and exerted pressure amid modest USD weakness.
• The downside seems cushioned as the focus remains glued to the US/Canadian jobs report.

The USD/CAD pair edged lower during the first half of the European session and dropped to a fresh daily low, around the 1.2815-1.2810 region in the last hour.

A combination of factors failed to assist the USD/CAD pair to capitalize on the overnight strong bounce from a near two-week low and attracted fresh selling near the 1.2865 region on Friday. A pickup in crude oil prices underpinned the commodity-linked loonie and acted as a headwind for spot prices amid modest intraday US dollar pullback.

An impending European Union embargo on Russian oil continued fueling worries about tightening supply and helped offset concerns about slowing global economic growth. In fact, the EU had proposed a plan to phase out Russian oil imports by end of the year. This, in turn, was seen as a key factor that extended some support to crude oil prices.

On the other hand, the USD witnessed some profit-taking amid some repositioning trade ahead of Friday's release of the closely-watched US monthly jobs report - popularly known as NFP. This further exerted some downward pressure on the USD/CAD pair, though hawkish Fed expectations and elevated US Treasury bond yields should limit the USD losses.

Fed Chair Jerome Powell had said that policymakers were ready to approve a 50 bps increase at upcoming meetings. Moreover, the markets expect that the Fed would need to take more drastic action to curb soaring and are pricing in an additional 200 bps rate hike for the rest of 2022. This, in turn, supports prospects for the emergence of some USD dip-buying.

Investors might also prefer to wait for a fresh impetus from the release of monthly employment details from the US and Canada, due later during the early North American session. This, along with the US bond yields, will influence the USD. Traders will further take cues from oil price dynamics for some short-term opportunities around the USD/CAD pair.

Technical levels to watch