- USD/CAD was seen consolidating this week’s strong recovery move from the YTD low.
- An uptick in oil prices extended some support to the loonie and acted as a headwind.
- The strong USD bullish sentiment helped limit losses ahead of the Canadian jobs data.
The USD/CAD pair extended its sideways consolidative price move and remained confined in a narrow band, just below the 1.2600 mark through the first half of the European session.
The pair struggled to capitalize on its solid rebound from the 1.2400 mark, or the YTD low touched on Tuesday and oscillated in a range below the very important 200-day SMA on the last day of the week. Crude oil prices recovered a bit from the three-week low touched the previous day and extended some support to the commodity-linked loonie. This, in turn, acted as a headwind for the USD/CAD pair, though the prevalent bullish sentiment surrounding the US dollar helped limit the downside.
The USD climbed to its highest level since May 2020 and continued drawing support from expectations that the Fed would tighten its monetary policy at a faster pace. In fact, the March 15-16 FOMC minutes released on Wednesday showed that policymakers were prepared to hike interest rates by 50 bps at upcoming meetings. Moreover, there was a general agreement about reducing the Fed's massive near $9 trillion balance sheet at a maximum pace of $95 billion per month to tighten financial conditions.
Apart from the Fed's hawkish outlook, inflation fears remain supportive of elevated US Treasury bond yields, which further underpinned the greenback. Investors seem worried that the recent surge in commodities following Russia's invasion of Ukraine would put upward pressure on the already higher consumer inflation. That said, a goodish recovery in the global equity markets held back traders from placing fresh bullish bets around the safe-haven buck and capped gains for the USD/CAD pair.
Market participants also preferred to wait on the sidelines ahead of the Canadian monthly employment details, due for release later during the early North American session. In the absence of any major market-moving economic releases from the US, the US bond yields will play a key role in influencing the USD. This, along with oil price dynamics and developments surrounding the Russia-Ukraine saga, should provide impetus to the USD/CAD pair and allow traders to grab short-term opportunities.