- Weaker oil prices undermined the loonie and assisted USD/CAD to regain positive traction.
- The risk-off impulse drove some haven flows towards the USD and remained supportive.
- The fundamental backdrop favours bullish traders and supports prospects for further gains.
The USD/CAD pair built on its steady intraday ascent and shot to a fresh daily high, around the 1.2825 region during the early North American session.
The pair attracted fresh buying on Friday and for now, seems to have stalled this week’s post-FOMC retracement slide from the 1.2935 region, or the highest level since August 20. This marked the first day of a positive move for the USD/CAD pair in the previous three sessions and was sponsored by a combination of factors.
The rapid spread of the Omicron coronavirus variant has been fueling worries that the imposition of fresh restrictions could dent the fuel demand. This, in turn, led to a fresh leg down in crude oil prices, now down over 2%, which undermined the commodity-linked loonie and assisted the USD/CAD pair to regain positive traction.
Meanwhile, the economic risks emerging from the new strain continued weighing on investors’ sentiment. This was evident from a generally weaker tone around the equity markets, which assisted the safe-haven US dollar to reverse an intraday dip to a one-week low. This was seen as another factor that provided a modest lift to the USD/CAD pair.
The greenback was further supported by a more hawkish outlook from the Fed. It is worth recalling that the Fed on Wednesday announced that it would double the pace of tapering to $30 billion per month. Moreover, the so-called dot plot showed that officials expect to raise the fed funds rate at least three times next year.
The fundamental backdrop remained supportive of the emergence of some dip-buying and allowed the USD/CAD pair to recover a major part of the overnight losses. In the absence of any major market-moving economic releases, the US/oil price dynamics will be looked upon to grab some short-term trading opportunities.