USD/CAD sticks to intraday gains amid a slump in oil prices, broad-based USD strength

• A combination of factors assisted USD/CAD to regain traction and snap a two-day losing streak.
• A slump in crude oil prices undermined the loonie and extended support amid a stronger USD.
• Investors now eye the Canadian CPI for some impetus ahead of Fed Chair Powell’s testimony.

The USD/CAD pair caught fresh bids on Wednesday and snapped a two-day day losing streak, stalling its recent pullback from the YTD peak around 1.3080 region. The intraday positive move extended through the early part of the European session and pushed spot prices back closer to the 1.3000 psychological mark.

Concerns about slowing global economic growth and fuel demand continued acting as a headwind for crude oil prices. Apart from this, a push by US President Joe Biden, to bring down soaring fuel costs, triggered a steep fall and dragged the black liquid to over a one-month low. This, in turn, undermined the commodity-linked loonie, which, along with a goodish pickup in the US dollar demand, provided a goodish lift to the USD/CAD pair.

Firming expectations that the Federal Reserve would retain its aggressive policy tightening stance to curb soaring inflation continued lending support to the USD. In fact, the markets are pricing in another 75 bps rate hike at the next FOMC meeting in July. Apart from this, a fresh wave of the global risk-aversion trade - as depicted by a sea of red across the equity markets - further boosted demand for the safe-haven greenback.

The market sentiment remains fragile amid doubts that major central banks could hike interest rates to curb soaring inflation without affecting global economic growth. This comes amid the global supply chain disruptions caused by the Russia-Ukraine war and the latest COVID-19 outbreak in China, which continued fueling recession fears. The worsening economic outlook forced investors to take refuge in traditional safe-haven assets.

Despite the combination of supporting factors, bulls might refrain from placing aggressive bets around the USD/CAD pair ahead of the key data/event risks. Wednesday's economic docket highlights the release of the latest Canadian consumer inflation figures, which along with oil price dynamics, will influence the CAD. The focus, however, will remain on Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee.

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