USDCAD seeks an establishment above 1.3350 as oil picks offers around $85.00

• USDCAD is aiming to shift its business above 1.3350 despite a recovery in risk-on profile.
• Long-term US yields are prone to more downside as Fed’s George sees slowdown in Fed’s rate hike pace from CY2022.
• Oil prices are falling amid accelerating Covid-19 cases in China and no signs of further sanctions on Russia.

The USDCAD pair is displaying a volatility contraction in a range of 1.3314-1.3345 in Asia after a vertical rally from key support around 1.3230. The asset is hovering around its weekly high and is looking to add more gains as oil prices have faced immense pressure. Contrary to the bullish bets on USDCAD, positive market sentiment is regaining traction.

S&P500 futures are recovering after registering losses on Wednesday. The 500-stock basket witnessed a sell-off as FMCG-to-retail chain operator Target Corporation (NYSE:TGT) projected a bleak outlook on consumer spending. The US dollar index (DXY) is displaying a subdue performance after a mild recovery from 106.20. Russia-Poland noise-led rally in the DXY could get concluded as clouds of uncertainty have faded.

Meanwhile, the 10-year US Treasury yields have rebounded marginally to near 3.71% after dropping below 3.7% earlier. The pullback move seems less confident as the odds for a fifth consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed) are extremely poor. As per the CME FedWatch tool, the odds signaling a 75 bps rate hike stands at 17%.

The commentary from Kansas City Fed President Esther George has delighted the need for recession to tame inflationary pressures. In an interview with the Wall Street Journal, Fed policymaker argued that bringing inflation down without causing a recession might not be feasible. He further advocated for a slowdown in the pace of rate hike increases from CY2022.

On the Loonie front, declining oil prices have brought volatility for the Canadian dollar. Easing Covid-19 curbs in China have failed to support oil prices as infected cases are skyrocketing. Also, clarity over the Russia-Poland noise has trimmed the chances of immediate sanctions on Russia by the trading bloc.