USD/CAD sticks to intraday recovery gains, eyes 1.3200 amid sliding Oil prices/stronger USD

• USD/CAD stages a goodish rebound from the YTD low and is supported by a combination of factors.
• Weaker Crude Oil prices undermine the Loonie and act as a tailwind amid a modest USD strength.
• The Fed’s hawkish outlook and the risk-off impulse continue to benefit the safe-haven Greenback.

The USD/CAD pair attracts some buying on the last day of the week and for now, seems to have snapped a two-day losing streak to its lowest level since September 2022, around the 1.3140-1.31235 area touched on Thursday. The pair maintains its bid tone through the Asian session and currently trades just below the 1.3200 mark, up over 0.25% for the day.

Crude Oil prices add to the overnight heavy losses and remain under some selling pressure for the second straight day in the wake of fears that rapidly rising borrowing costs will take its toll on global economic growth and dent fuel demand. This, in turn, is seen undermining the commodity-linked Loonie, which, along with some follow-through US Dollar (USD) buying, prompts some intraday short-covering move around the USD/CAD pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, builds on the previous day's goodish rebound from its lowest level since May 11 and draws support from the Federal Reserve's hawkish outlook. In fact, Fed Chair Jerome Powell, during his two-day congressional testimony, reiterated that the central bank will likely raise interest rates again this year, albeit at a "careful pace", to combat stubbornly high inflation.

Powell added that the Fed doesn't see rate cuts happening any time soon and is going to wait until it is confident that inflation is moving down to the 2% target. Furthermore, worries about a global economic downturn continue to weigh on investors' sentiment, which is evident from a generally weaker tone around the equity markets. The anti-risk flow further benefits the Greenback's relative safe-haven status and lends additional support to the USD/CAD pair.

Despite the aforementioned supportive fundamental backdrop, it will still be prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom and positioning for any meaningful recovery. Market participants now look to the release of the flash US PMIs, which, along with the broader risk sentiment, will drive the USD demand. Apart from this, Oil price dynamics should provide a fresh impetus to the USD/CAD pair.

Technical levels to watch