USD/CAD trades with modest losses below 1.3600 amid bullish Oil prices, weaker USD

• USD/CAD meets with a fresh supply on Friday and is pressured by a combination of factors.
• Bullish Oil prices underpin the Loonie and act as a headwind amid a modest USD weakness.
• Recession fears, hawkish Fed expectations should limit losses for the USD and lend support.

The USD/CAD pair attracts some sellers near the 1.3600 round-figure mark on Friday and maintains its offered tone through the early European session. The pair is currently placed around the 1.3575 region, down just over 0.10% for the day, though any meaningful downside still seems elusive.

Crude Oil prices hold steady near a two-week high touched on Thursday amid the latest optimism about a strong fuel demand recovery in China - the world's top importer. This, in turn, is seen underpinning the commodity-linked Loonie, which, along with a modest US Dollar downtick, exerts some downward pressure on the USD/CAD pair. That said, growing worries that rapidly rising borrowing costs will dampen global economic growth and dent fuel demand could cap gains for Oil prices. Apart from this, hawkish Fed expectations support prospects for the emergence of some USD dip buying and should contribute to limiting losses for the major.

The US CPI, PPI and the PCE Price Index released recently indicated that inflation isn't coming down quite as fast as hoped. Moreover, the incoming upbeat US macro data, including the Initial Jobless Claims on Thursday, pointed to a resilient economy. Adding to this, a slew of FOMC members backed the case for higher rate hikes to tame stubbornly high inflation and remains supportive of elevated US bond yields. In fact, the yield on the benchmark 10-year US government bond rose to its highest level since last November and the rate-sensitive two-year Treasury note shot to levels last seen in July 2007, which, in turn, favours the USD bulls.

Apart from this, speculations that the Bank of Canada (BoC) could pause the policy-tightening cycle, bolstered by the softer Canadian CPI report released last week, warrant caution before placing aggressive bearish bets around the USD/CAD pair. Hence, it will be prudent to wait for strong follow-through selling before confirming that the recent upward trajectory witnessed over the past two weeks or so has run its course. Traders now look to the release of the US ISM Services PMI, due later during the early North American session. Apart from this, Oil price dynamics should provide some meaningful impetus on the last day of the week.

Technical levels to watch