USD/CAD trades with modest losses below 1.3400 amid rebounding oil prices, weaker USD

The USD/CAD pair comes under some selling during the Asian session on Thursday and moves away from the weekly high, around the 1.3440 region touched the previous day. The pair currently trades around the 1.3380-1.3375 region and is pressured by a combination of factors.

Crude oil prices gain some positive traction and snap a three-day losing streak amid hopes for a strong recovery in fuel demand. In fact, both the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) forecast a rebound in crude demand later this year. This helps offset a substantial rise in the US crude inventories and acts as a tailwind for the black liquid, which, in turn, underpins the commodity-linked Loonie. Apart from this, a modest US Dollar weakness weighs on the USD/CAD pair.

In fact, the USD Index, which tracks the Greenback against a basket of currencies, extends the overnight pullback from a six-week high amid retreating US Treasury bond yields. This, along with a generally positive tone around the equity markets, is seen denting demand for the safe-haven buck. That said, the prospects for further policy tightening by the Fed should limit the downside for the US bond yields and the USD. This, in turn, warrants some caution before positioning for any further depreciating move for the USD/CAD pair.

Investors seem convinced that the US central bank will continue to hike interest rates in the wake of stubbornly high inflation. The bets were lifted by the US CPI report and hawkish comments by several Fed policymakers on Tuesday. Furthermore, the upbeat US monthly Retail Sales figures released on Wednesday indicated that the economy remains resilient despite rising borrowing costs. This should allow the Fed to stick to its hawkish stance for longer and supports prospects for the emergence of some USD dip-buying.

Market participants now look forward to the release of the US Producer Price Index (PPI), due later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will influence the Greenback. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair.

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