USD/CAD sticks to gains near monthly peak amid sliding Oil prices, modest USD strength

• A combination of supporting factors pushes USD/CAD back closer to the monthly peak.
• Bearish Oil prices undermine the Loonie and act as a tailwind amid fresh USD buying.
• Bets for more Fed rate hikes and a weaker risk tone benefit the safe-haven Greenback.

The USD/CAD pair kicks off the new week on a positive note and steadily climbs back closer to the monthly peak touched on Friday. The pair currently trades just above the mid-1.3500s, up nearly 0.15% for the day and draws support from a combination of factors.

Despite the prospect of tighter supplies on OPEC+ supply cuts, Crude Oil prices languish near the monthly low amid concerns that rising borrowing costs will hamper global economic growth and dent fuel demand. This, in turn, is seen undermining the commodity-linked Loonie. Apart from this, a modest US Dollar (USD) uptick assists the USD/CAD pair to capitalize on its recent strong recovery from the 1.3300 mark, or a two-month low.

The USD regains some positive traction in the wake of growing acceptance that the Federal Reserve (Fed) will continue raising interest rates to curb inflation. In fact, a 25 bps lift-off at the next FOMC meeting in May is fully priced in the markets and the Fed funds future indicates a small chance of another rate hike in June. The bets were lifted by the recent hawkish comments by several Fed officials and the incoming positive US macro data.

The flash version of S&P Global's PMI survey showed on Friday that the overall business activity in the US private sector expanded at a faster pace in April. The activity in the service sector grew for a third straight month and at the fastest rate in a year, while the gauge for the US manufacturing sector moved into the expansion territory for the first time since October 2022, suggesting that the world's largest economy remained resilient.

Apart from this, a generally weaker tone around the equity markets further benefits the Greenback's relative safe-haven status and acts as a tailwind for the USD/CAD pair. In the absence of any relevant economic data from the US, the aforementioned fundamental backdrop favours bullish traders and supports prospects for a further near-term appreciating move for the major. Hence, any meaningful pullback is likely to attract fresh buyers and remain limited.

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