USD/CAD continues to recover from 2-month lows and climbs to mid-1.2500 on weaker oil prices
- USD/CAD gained some positive traction on Friday, ending seven days of losing streak.
- The drop in oil prices undermined the loonie and helped the pair defend the 1.2500 level.
- A positive risk sentiment weighed on the safe-haven USD and may curb further gains.
The USD/CAD pair edged higher at the start of the European session and in the last hour has climbed to a fresh daily high around the mid-1.2500s.
After defending the key psychological level of 1.2500, the USD/CAD pair gained some bullish traction on Friday, recovering much of the overnight fall to two-month lows. This was the first day of positive movement in the previous nine years and was helped by a slight decline in crude oil prices that tends to undermine the commodity-linked loonie.
The European Union remained divided over the imposition of an oil embargo on Russia, assuaging growing market fears of a supply crisis. In addition, US Energy Secretary Jennifer Granholm said Thursday that the United States and its allies would discuss a possible further coordinated release of oil from storage. This in turn weighed on the black liquid.
On the other hand, a generally positive tone in equity markets undermined the safe haven US dollar and discouraged bulls from placing aggressive bets around the USD/CAD pair. Even from a technical perspective, this week’s convincing break and acceptance below the very important 200-day SMA warrants caution before confirming that the pair has bottomed.
Market participants now look forward to the US economics list with the release of the revised Michigan Consumer Sentiment Index and Pending Home Sales data. This along with overall risk sentiment and US bond yields will impact the USD. Traders will continue to take cues on oil price dynamics for a few short-term opportunities surrounding the USD/CAD pair.