USD/CAD bears take on the bulls at 1.26 the figure as oil remains firmly bid

• USD/CAD is being forced back by the rise of oil prices. 
• Traders will now look to the Canadian inflation report this week. 

USD/CAD is a touch heavy in the Tokyo open, turning red on the day so far and testing 1.26 the figure at the time of writing, sliding from a high of 1.2634 scored on the rollover between New York and early Asia.  

Overall, it's been a US dollar story at the start of the week which is starting to give back some ground. In the case of CAD, oil prices have steadied as well which is providing support to the loonie as investors await inflation data due this Wednesday.

Investors will be looking to the Consumer Price Index for March that could help guide expectations for further tightening from the Bank of Canada following last week's half of a percentage point increase to 1%. This was its biggest single hike in more than two decades and done in an effort to try to limit inflation.

''We look for CPI to firm to 6.1% YoY in March, with prices up 0.9% MoM,'' analysts at TD Securities explained.   ''Energy will provide the main driver, led by an 11% increase in gasoline, alongside another significant contribution from food. Motor vehicles, clothing, and shelter should help drive strength in the ex. food/energy aggregate, while the BoC's core inflation measures should firm to 3.6% y/y on average,'' the analysts at TDS said. 

US oil higher

Meanwhile, West Texas Intermediate (WTI) crude settled higher on Monday as supply disruptions in Libya offset concerns over Chinese demand amid Covid-19 lockdowns. Futures settled +1.2% higher at $108.21 a barrel due to the outages in Libya that have deepened concern over tight global supply. The country's National Oil Corp declared force majeure at an export port after protests over cancelled elections shut down its largest oil field.

As for the greenback, the dollar rose to a fresh two-year high, tracking higher US Treasury yields in thin trade. Investors are moving into the greenback and are bracing for multiple half a percentage-point rate hikes from the Federal Reserve.

US rate futures market has priced in a 96% chance of a 50 basis-point tightening at the start of May when the Federal Reserve meets and about 215 basis points in cumulative rate increases in 2022, providing plenty of speculative positioning into the greenback. The benchmark U.S. 10-year Treasury yield, meanwhile, touched a three-year high of 2.884%