• A combination of supporting factors assisted USD/CAD to regain positive traction on Monday.
• Crude oil prices remained depressed near the multi-week low, which undermined the loonie.
• The Fed’s hawkish outlook, surging US bond yields benefitted the USD and extended support.

The USD/CAD pair maintained its strong bid tone through the early European session and was last seen trading around the 1.2600 mark, just a few pips below the daily high.

Following Friday's strong Canadian jobs-led pullback from the very important 200-day SMA, the USD/CAD pair attracted fresh buying on Monday and was supported by a combination of factors. Crude oil prices languished near the multi-week low and undermined the commodity-linked loonie. This, along with modest US dollar strength, acted as a tailwind for spot prices.

Consumer countries last week announced plans to release a record volume of crude and oil products from emergency reserves to help offset the disrupted Russian supply. Adding to this, fears that extended COVID-19 lockdowns in key urban centres in China -  the world's biggest oil importer - would slow the recovery in fuel demand continued weighing on crude oil prices.

On the other hand, the USD stood tall near its highest level since May 2020 amid the prospects for a more aggressive policy tightening by the Fed. In fact, the minutes of the March FOMC meeting showed that many participants were prepared to raise the interest rate by 50 bps in the next few meetings amid concerns that inflation has broadened through the economy.

Apart from this, concerns that the recent surge in commodity prices would put upward pressure on the already high consumer inflation pushed the US Treasury bond yields to a fresh multi-year peak. Hence, the market focus will remain glued to the latest US consumer inflation figures, scheduled for release on Tuesday, which will influence the USD in the near term.

In the meantime, the US bond yields will continue to play a key role in driving the USD demand and provide some impetus to the USD/CAD pair. Traders will further take cues from oil price dynamics to grab some short-term opportunities amid absent relevant market-moving economic releases on Monday, either from the US or Canada.

Technical levels to watch