USD/CAD drops below 1.2870 as DXY struggles around 104.00, oil above $110.00

• USD/CAD has slipped below 1.2870 as oil prices have rebounded firmly.
• The DXY is struggling to surpass 104.00 on advancing recession fears.
• Fed’s quick rate hike announcements are raising hopes of a tight liquidity environment.

The USD/CAD pair has witnessed a marginal fall to near 1.2860 after slipping below the critical support of 1.2870. The asset is expected to extend its losses establishing below 1.2860 as the oil prices have extended their recovery and are auctioning above the psychological resistance of $110.00.

It is worth noting that Canada is a leading exporter of oil to the US. Therefore, higher oil prices result in higher fund inflows for Canada.  The oil prices have rebounded strongly as investors have started underpinning the current supply constraints rather than focusing on forwarding recession fears.

After the prohibition of oil imports from Russia by the Western leaders, the OPEC cartel is working on fixing the supply issues. Majorly, only two OPEC countries: Saudi Arabia and United Arab Emirates (UAE) carry the ability to add significant oil to the global supply. Both nations are enjoying high prices and high supplied quantity levels.

Meanwhile, the US dollar index (DXY) is struggling to violate the round-level resistance of 104.00 decisively. As quick as the Federal Reserve (Fed) is stepping up interest rates, the expectations of recession fears are scaling higher. No doubt, that the Fed will elevate its borrowing rates to at least 2% in its July monetary policy.  An interest rate of 2% in the US economy is sufficient to squeeze liquidity from the market. This will force the corporate sector to stick to some ultra-filtered investment projects and eventually less demand for labor in the economy for some time.