• A combination of factors prompts heavy selling around USDCAD on Friday.
• Rising oil prices underpin the Loonie and exert pressure amid a weaker USD.
• Recession fears and the Fed’s hawkish outlook should help limit the downside.
• Traders might also wait for the monthly jobs report from the US and Canada.

The USDCAD pair comes under heavy selling pressure on Friday and extends the previous day's retracement slide from a nearly two-week high, levels just above the 1.3800 mark. The downward trajectory remains uninterrupted through the first half of the European session and drags spot prices below mid-1.3600s

Reports that the Group of Seven (G7) rich countries agreed to set a fixed price on Russian crude exports raised concerns about tight global supplies. This, in turn, triggers a fresh leg up in crude oil prices, which underpins the commodity-linked Loonie. The US dollar, on the other hand, stalls the post-FOMC strong rally and turns out to be another factor dragging the USDCAD pair. The fundamental backdrop, however, warrants some caution before positioning for any further depreciating move.

Investors remain concerned that a recession in the United States, the world's biggest oil consumer, and China's zero-COVID policy will dent fuel demand. This might keep a lid on any meaningful upside for the commodity. Apart from this, a more hawkish stance adopted by the Federal Reserve should continue to act as a tailwind for the buck and help limit the downside for the USDCAD pair.  In fact, Fed Chair Jerome Powell said on Wednesday that it was premature to discuss a pause in the rate-hiking cycle.

Powell added that the terminal rate will still be higher than anticipated, which remains supportive of elevated US Treasury bond yields and favours the USD bulls. Traders might also prefer to wait for the release of the monthly employment details from the US and Canada, due later during the early North American session. Nevertheless, spot prices, for now, seem to have snapped a six-day winning streak, erasing a major part of its weekly gains, and remain at the mercy of the USD/oil price dynamics.

Technical levels to watch