- USD/CAD gained traction for the third straight day and climbed to a fresh YTD high on Monday.
- Sliding crude oil prices undermined the loonie and extended support amid sustained USD buying.
- Bets for aggressive Fed rate hikes and the prevalent risk-off mood benefitted the safe-haven buck.
The USD/CAD pair maintained its bid tone through the first half of the European session and was last seen trading around the 1.2925 region, just a few pips below the YTD peak.
A combination of factors assisted the USD/CAD pair to build on its recent strong bullish trajectory witnessed over the past one month or so and gain traction for the third successive day on Monday. The US dollar stood tall near a two-decade high amid the prospects for a more aggressive policy tightening by the Fed. Apart from this, sliding crude oil prices undermined the commodity-linked loonie and acted as a tailwind for the major.
Fed Chair Jerome Powell said last week that a 75 bps rate hike is not under active consideration. The markets, however, seem convinced that the US central bank would need to take a more drastic action to curb soaring inflation and are still pricing in a further 200 bps rate hike for the rest of 2022. This, in turn, pushed the yield on the benchmark 10-year US government bond to its highest level in more than a decade and benefitted the buck.
Expectations for rapid rate hikes in the US, along with strict COVID-19 lockdowns in China, have been fueling concerns about global economic growth and a possible recession. This, in turn, tempered investors' appetite for riskier assets and also acted as a headwind for crude oil, despite worries over tightening supply. Adding to this, Friday's rather unimpressive Canadian jobs report, weighed on the domestic currency and extended support to the USD/CAD pair.
Moving ahead, there isn't any major market-moving economic data due for release on Monday, either from the US or Canada. Hence, the US bond yields and the broader market risk sentiment will continue to play a key role in driving the USD demand. Traders will further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.