USD/CAD stays defensive above 1.2700 as oil prices grind higher, risk appetite improves

• USD/CAD snaps two-day uptrend, grinds higher of late.
• US-Canada trade link re-established after police cleared protests against covid restrictions.
• Oil prices stay firmer amid Russia-Ukraine war fears even as Kyiv recently requested Moscow for a meeting.
• Risk catalysts will be crucial for intraday moves, FOMC Minutes becomes the week’s key event.

USD/CAD holds onto mild losses around 1.2730 ahead of Monday’s European session.

The loonie pair drops for the first time in three days as easing geopolitical tensions in Canada and abroad, as well as upbeat oil prices, favor the Canadian dollar (CAD). It should be noted, however, that a light calendar and indecision over Russia-Ukraine situations, not to forget cautious mood at the Fed, restricts the quote’s immediate moves.

“North America's busiest trade link reopened for traffic late Sunday evening, ending a six-day blockade, Canada Border Services Agency said, after Canadian police cleared the protesters fighting to end COVID-19 restrictions,” said Reuters.

On the other hand, Ukraine recently requested Russia for a meeting, which in turn tamed geopolitical fears of imminent war as signaled by the Western leaders the previous day.

In adding to the ebbing risk-off mood, a lack of clarity over the Fed’s next move also weigh on USD/CAD prices, not to forget the upbeat prices of Canada’s key export WTI crude oil. It should be noted that WTI crude oil trades near the highest levels since late 2014 while taking rounds to $93.00 of late.

The markets went gung-ho about the 50 basis points (bps) of Fed-rate-hike in March versus the previous hopes of a 0.25% move during the last week. However, downbeat readings of US Michigan Consumer Sentiment for February, to 61.7 versus 67.2 prior, pushed the CME FedWatch Tool to suggest nearly 50-50 chances of such a move and drown the US Treasury yields.

Elsewhere, the recent Fedspeak also hesitates to favor a strong move on the rates and hence exert downside pressure on the USD/CAD prices.

Looking forward, USD/CAD traders await clear updates from Russia, as well as comments from St. Louis Fed President James Bullard, for intraday direction. However, major importance will be given to Wednesday’s Federal Open Market Committee (FOMC) Meeting Minutes.

Read: USD/CAD Weekly Forecast: Ukraine reorders market outlook

Technical analysis

The USD/CAD pair justifies the late Friday’s ‘Hanging man’ candlestick, as well as the Momentum line’s retreat, to register daily losses for the first time in three. With this, the prices are likely to extend the latest pullback towards the 100-SMA level near 1.2680.

However, the lower line of the stated two-week-old descending trend channel, near 1.2630, will restrict the pair’s further weakness, if not then the late January’s swing low around 1.2560 should return to the charts.

On the flip side, the channel’s resistance line near 1.2750 and late January’s peak around 1.2800 will restrict short-term upside moves of the USD/CAD pair.