USD/CAD struggles near weekly low, around mid-1.2600s amid bullish oil prices/weaker USD

• A combination of factors dragged USD/CAD lower for the third successive day on Wednesday.
• Bullish oil prices underpinned the loonie and exerted pressure amid sustained USD selling bias.
• The disappointing release of the US ADP report did little to provide any respite to the USD bulls.

The USD/CAD pair witnessed fresh selling during the early North American session and dropped to a fresh weekly low, around mid-1.2600s in reaction to the dismal US ADP report.

Following an early uptick to the 1.2700 mark, the USD/CAD pair turned lower for the third successive day on Wednesday and was pressured by a combination of factors. Crude oil prices jumped to a fresh seven-year high, which continued underpinning the commodity-linked loonie. This, along with the heavily offered tone surrounding the US dollar, exerted downward pressure on the major.

Oil prices broke out of a one-week-old consolidative trading range and shot to a fresh seven-year high after the OPEC+ announced to increase March oil production by 400K barrels per day. This, along with the post-pandemic recovery in fuel demand, should keep a tight supply condition. Apart from this, the conflict between Russia and the West over Ukraine acted as a tailwind for the black gold.

On the other hand, the greenback was weighed down by diminishing odds for a 50 bps Fed rate hike in March and lost additional ground following the release of disappointing US macro data, Automatic Data Processing (ADP) reported this Wednesday that the US private-sector employment declined by 301K in January as against market expectations for an addition of 207K jobs and the 807K previous.

This, along with weaker US Treasury bond yields and a generally positive tone around the equity markets, further undermined the greenback's relative safe-haven status. The fundamental backdrop supports prospects for a further near-term depreciating move for the USD/CAD pair, though the lack of any follow-through selling warrants some caution for aggressive bearish traders.

Technical levels to watch