- USD/CAD attracted some dip-buying on Friday, though lacked any follow-through.
- Retreating oil prices undermined the loonie and extended support to the major.
- Subdued USD demand held back bulls from placing fresh bets and capped gains.
The USD/CAD pair reversed modest intraday losses and was seen trading in the neutral territory, around the 1.2700 mark during the early North American session.
The pair attracted some dip-buying near the 1.2675-1.2670 region on Friday, though a combination of factors kept a lid on any meaningful gains. Hopes for a diplomatic solution to the Ukraine crisis, along with expectations for the return of Iranian oil in the markets weighed on crude oil prices and undermined the commodity-linked loonie. This, in turn, was seen as a key factor that extended some support to the USD/CAD pair.
The intraday uptick, however, lacked any bullish conviction amid subdued US dollar demand, weighed down by a positive risk tone and uncertainty about the pace of the Fed's policy tightening cycle. The minutes of the January 25-26 FOMC minutes failed to reinforce expectations for a 50 bps rate hike in March. Moreover, the latest political developments could force the Fed to adopt a less aggressive policy stance to combat high inflation.
This, along with a softer tone around the US Treasury bond yields, capped the upside for the greenback and failed to impress bullish traders. The USD/CAD pair had a rather muted reaction to mixed Canadian macro data, which showed that the headline Retail Sales contracted less-than-expected, by 1.8% in December. This was offset by a larger-than-anticipated, 2.5% fall in the core sales (excluding autos) during the reported month.
Next on tap will be the release of Existing Home Sales data from the US. This, along with the broader market risk sentiment and the US bond yields, will influence the greenback. Apart from this, traders will take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.
