USD/CAD finds fragile barricades around 1.3660, upside looks favored amid risk-off mood

• USD/CAD is struggling to extend gains above 1.3660 as USD Index corrects, upside bias still intact.
• The Canadian Dollar is facing immense offers after a downbeat Gross Domestic Product (GDP) (Q4) data.
• Oil prices are reviving firmly on upbeat Caixin Manufacturing PMI data.

The USD/CAD pair has sensed a halt in its upside momentum near 1.3660 in the Asian session. The upside momentum in the Loonie asset has cooled down a bit, however, the upside bias is still intact. The Loonie asset is expected to recapture the previous week’s high around 1.3665 as the US Dollar is getting strengthened further led by rising fears of further policy tightening by the Federal Reserve (Fed).

Losses have deepened by the S&P500 futures in the Asian session as the United States recession has come into the picture amid hawkish Fed bets. The US Dollar Index (DXY) has sensed barricades around 104.70, however, the risk aversion theme is still solid.

The yields offered on US treasury bonds have strengthened further as investors are expecting a mega rate hike from the Fed considering February’s economic indicators, which are promising a rebound in the inflationary pressures. The 10-year US Treasury yields have scaled to 3.94%, at the time of writing.

Meanwhile, the Canadian Dollar is facing immense offers after a downbeat Gross Domestic Product (GDP) (Q4) data. The annualized GDP remained flat lower than the expectations of 1.5% and the former release of 2.3%. While the monthly GDP (Dec) contracted by 0.1% vs. a flat consensus.

Flat GDP numbers might not be lucrative for Canada’s economic outlook but are favorable for the Bank of Canada (BoC), which is making efforts in bringing down persistent inflation. It is worth noting that BoC Governor Tiff Macklem has already paused the policy tightening spell after pushing rates to 4.5%, considering that the current monetary policy is restrictive enough to trim inflationary pressures for now.

On the oil front, oil prices have rebounded firmly after an upbeat China’s Caixin Manufacturing PMI data. The economic data has landed at 51.6, higher than the consensus of 50.2 and the former release of 49.2. It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices will strengthen the Canadian Dollar.