USD/CAD sticks to strong gains above mid-1.3700s amid a blowout USD rally, tumbling Oil prices

• USD/CAD gains strong traction on Wednesday and draws support from a combination of factors.
• A fresh wave of the global risk-aversion trade, hawkish Fed expectations underpin the Greenback.
• A slump in Oil prices weighs heavily on the Loonie and remains supportive of the strong move up.

The USD/CAD pair attracts fresh buying near the 1.3660 region on Wednesday and snaps a three-day losing streak to a one-week low touched the previous day. The pair maintains its bid tone through the early North American session and is currently placed around the 1.3755-1.3760 area, just a few pips below the daily peak touched in the last hour.

A combination of supporting factors provides a strong boost to the US Dollar, which, in turn, is seen as a key factor acting as a tailwind for the USD/CAD pair. The US CPI report released on Tuesday indicated that inflation isn't coming down quite as fast as hoped and revived bets for at least a 25 bps rate hike by the Federal Reserve at its policy meeting on March 21-22. Apart from this, a fresh wave of the global risk-aversion trade, led by negative news surrounding the Swiss lender Credit Suisse, further benefits the Greenback's relative safe-haven status.

In fact, the top shareholder of the troubled Swiss bank said that it can't pump in any more money as a bigger holding would bring additional regulatory hurdles, fueling speculations that the bank will eventually default. This, in turn, triggered a massive sell-off across the global equity markets, which, to a larger extent, helps offset the mostly disappointing US macro data and continues to underpin the buck. the US Producer Price Index (PPI) unexpectedly declined by 0.1% in February and the yearly rate decelerated more than anticipated, to 4.6% from 5.7% in January.

Furthermore, the core PPI, which excludes food and energy prices, remained flat during the reported month and fell to a 4.4% YoY rate from 5.4% recorded in the previous month. Separately, the US monthly Retail Sales fell by 0.4% in February as compared to the strong 3.2% rise recorded in the previous month and the 0.3% decline expected. Adding to this, the New York Fed's Empire State Manufacturing Index plummets to -24.6 for the current month, missing estimates for a fall to -8 from the -5.8 previous, though does little to dent the intraday bullish sentiment around the USD.

Apart from this, a steep downfall in Crude Oil prices, to the lowest level since December 2021, is seen weighing heavily on the commodity-linked Loonie and extends additional support to the USD/CAD pair. This, along with the fact that the Bank of Canada (BoC) became the first major central bank to pause its rate-hiking cycle last week, suggests that the path of least resistance for spot prices is to the upside. Hence, a subsequent strength towards the 1.3800 mark, en route to the multi-month peak, around the 1.3860 touched earlier this March, looks like a distinct possibility.

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