USD/CAD climbs to its highest since June 2020 amid sliding oil prices, stronger USD

• A combination of factors lifts USD/CAD to its highest level since June 2020 on Monday.
• Bearish oil prices undermine the loonie and offer support amid relentless USD buying.
• Investors look for Fedspeaks for some impetus and short-term trading opportunities.

The USD/CAD pair builds on last week's bullish breakout momentum and gains some follow-through traction on Monday. The momentum lifts spot prices to the highest level since June 2020, around the 1.3640 area during the early European session and is sponsored by a combination of factors.

Crude oil prices kick off the new week on a downbeat note and hit a fresh multi-month low amid worries that a deeper global economic downturn will hurt fuel demand. This, in turn, is seen undermining the commodity-linked loonie, which, along with relentless US dollar buying, continues to boost the USD/CAD pair.

The Fed last week delivered another supersized rate hike, as was widely anticipated, and signalled that it will likely undertake more aggressive increases at its upcoming meetings to cap inflation. The hawkish outlook remains supportive of elevated US Treasury bond yields and continues to lend support to the buck.

In fact, the yield on the rate-sensitive 2-year US government bond stands tall near a 15-year high and the benchmark 10-year Treasury hits its highest in 11 years. Apart from this, the prevalent risk-off environment is seen as another factor benefitting the safe-haven greenback and lending support to the USD/CAD pair.

The market sentiment remains fragile amid recession fears, which, along with geopolitical risk, take its toll on the global risk sentiment. The anti-risk flow is evident from a generally weaker tone around the equity markets, which favours the USD bulls and supports prospects for additional gains for the USD/CAD pair.

Market participants now look forward to speeches by influential FOMC members - Boston Fed President Susan Collins, Atlanta Fed President Raphael Bostic and Dallas Fed President Lorie Logan. This, along with the US bond yields and the broader risk sentiment, might influence the USD and provide some impetus to the USD/CAD pair. Traders will further take cues from oil price dynamics to grab short-term opportunities.

Technical levels to watch