USD/CAD steadily climbs to 1.2575 area amid retreating oil prices/modest USD strength

• USD/CAD gained traction for the second straight day and recovered further from a seven-week low.
• Retreating crude oil prices undermined the loonie and acted as a tailwind amid modest USD strength.
• Elevated US bond yields extended support to the USD amid the worsening global economic outlook.

The USD/CAD pair built on the overnight recovery move from its lowest level since April 21 and gained some follow-through traction for the second successive day on Thursday. The pair maintained its bid tone through the early European session and was last seen trading around the 1.2570-1.2575 region, up over 0.10% for the day.

Crude oil prices witnessed some profit-taking from a three-month high touched on Wednesday amid the imposition of a new mini-lockdown in Shanghai - China’s biggest city and a global financial hub. This, in turn, undermined the commodity-linked loonie and acted as a tailwind for the USD/CAD pair amid modest US dollar strength.

Doubts that major central banks can hike interest rates to curb inflation without impacting economic growth continued weighing on investors' sentiment. This was evident from a generally weaker tone around the equity markets, which, along with elevated US Treasury bond yields, extended some support to the safe-haven greenback.

The yield on the benchmark 10-year US government bond held steady above 3.0% amid worries about rising inflationary pressures that might force the Fed to tighten its policy at a faster pace. Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war would push consumer prices even higher.

Hence, the market focus will remain glued to the latest US consumer inflation figures on Friday, which might influence the Fed's tightening path. The US CPI report will be accompanied by the release of the monthly Canadian employment details. The key macro data should assist traders to determine the near-term trajector for the USD/CAD pair.

In the meantime, traders might take cues from the US Weekly Initial Jobless Claims data and Bank of Canada Governor Tiff Macklem's scheduled speech later during the North American session. Apart from this, the US bond yields, the broader market risk sentiment and oil price dynamics could provide some impetus to the USD/CAD pair.

Technical levels to watch