USD/CAD oscillates in a rang near multi-week high, bullish Oil prices seem to cap the upside

• USD/CAD continues to draw support from diminishing odds for more rate hikes by the BoC.
• Hawkish Fed expectations, elevated US bond yields and a weaker risk tone benefit the USD.
• Bullish Crude Oil prices underpin the Loonie and keep a lid on any further gains for the major.

The USD/CAD pair trades with a mild positive bias for the fourth successive day on Friday and is currently placed around the 1.3720-1.3725 region, just a few pips below a two-week high touched the previous day.

The softer Canadian consumer inflation figures released on Tuesday forced investors to trim bets for another rate hike by the Bank of Canada (BoC), which, in turn, is seen as a key factor behind the Canadian Dollar's (CAD) relative underperformance. This, along with the emergence of some US Dollar (USD) buying, acts as a tailwind for the USD/CAD pair, though bullish Crude Oil prices underpin the commodity-linked Lonie and keep a lid on any further gains.

The USD continues to draw support from firming expectations for one more rate hike by the Federal Reserve (Fed) in 2023. The bets were reaffirmed by Fed Chair Jerome Powell's comments on Thursday, saying that inflation was still too high and that monetary policy was not yet too tight. This remains supportive of elevated US Treasury bond yields, which, along with the prevalent risk-off environment, benefits the safe-haven buck and lends support to the USD/CAD pair.

In fact, the yield on the benchmark 10-year US government bond hovers just below the 5% psychological mark, or a 16-year top touched the previous day. This continues to fuel worries about economic headwinds stemming from rapidly rising borrowing costs. Adding to this, growing concerns that the Israel-Hamas conflict could spill over into the broader Middle East region temper investors' appetite for riskier assets, which is evident from a weaker tone around the equity markets.

Crude Oil prices, meanwhile, remain supported by concerns about disruption to global supplies on the back of the risk of an escalation of geopolitical tensions in the Middle East. Furthermore, the US government outlined plans to begin refiling the Strategic Petroleum Reserve (SPR), which adds to worries about tightening global supply and lifts Crude Oil prices to a three-week high. This, in turn, holds back bulls from placing fresh bets around the USD/CAD pair and caps gains.

Traders now look to the release of the Canadian Retail Sales figures, due later during the early North American season, which, along with Oil price dynamics, will influence the CAD. Meanwhile, there isn't any relevant market-moving economic data due from the US on Friday, leaving the USD at the mercy of the US bond yields and the broader risk sentiment. Apart from this, speeches by FOMC members will drive the USD demand and provide short-term trading impetus to the major.

Technical levels to watch