USD/CAD plummets to sub-1.3000 levels, fresh monthly low ahead of Canadian jobs data

• USD/CAD remains under intense selling pressure for the third successive day on Friday.
• Recovering oil prices underpin the loonie and exert pressure amid a heavy USD sell-off.
• Investors now eye Canadian employment details for some meaningful trading impetus.

The USD/CAD pair prolongs this week's sharp pullback from levels just above the 1.3200 mark and remains under intense selling pressure for the third successive day on Friday. The steep intraday descent drags spot prices below the 1.3000 psychological mark during the first half of the European session and is sponsored by a combination of factors.

Crude oil prices build on the previous day's modest bounce from a multi-month low amid growing worries about tight global supply. Against the backdrop of a symbolic output cut by OPEC+, Russia's threat to cut oil flows to any country that backs a price cap on its crude adds to market concerns and acts as a tailwind for the black liquid. This, in turn, underpins the commodity-linked loonie, which along with aggressive US dollar selling, exerts heavy downward pressure on the USD/CAD pair.

The risk-on impulse - as depicted by a generally positive tone around the equity markets - turns out to be a key factor weighing on the safe-haven buck. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, retreats further from a two-decade high touched earlier this week and dives to a fresh monthly low. That said, expectations that the Fed will continue to tighten its monetary policy at a faster pace should help limit the USD downside.

In fact, the implied odds for a 75 bps Fed rate hike move in September now stands at 85%. The bets were reaffirmed by the overnight hawkish remarks by Fed Chair Jerome Powell, reiterating the central bank's strong commitment to bringing inflation down. This remains supportive of elevated US Treasury bond yields and should act as a tailwind for the USD. Furthermore, concerns that a deeper global economic downturn will hurt fuel demand should cap oil prices and lend some support to the USD/CAD pair.

Market participants now look forward to the release of the monthly Canadian employment figures, due later during the early North American session. This, along with oil price dynamics, will influence the Canadian dollar and provide a fresh impetus to the USD/CAD pair. Traders will further take cues from scheduled speeches by Fed officials. Apart from this, the US bond yields and the market risk sentiment will drive the USD demand, allowing traders to grab short-term opportunities around the pair.

Technical levels to watch