The USD/CAD pair persists in its downward trajectory for the sixth consecutive day on Monday, following a retreat from the 1.3610-1.3615 supply zone, marking the year-to-date peak. Despite the downturn, the pair finds support above the psychological threshold of 1.3500, allowing for a slight recovery from a one-week low observed during the Asian session.
The surge in crude oil prices to a five-month high contributes to the strength of the commodity-linked Canadian dollar (CAD). This surge is fueled by concerns over tightening global supply, attributed to OPEC+ production cuts, disruptions in Russian refineries due to recent attacks, and encouraging manufacturing data from China. OPEC+ commitment to extend production cuts until the end of June further supports the upward momentum in oil prices.
Russian Deputy Prime Minister Alexander Novak’s statement on Friday, indicating a focus on reducing output rather than exports by Russian oil companies in the second quarter, adds to the bullish sentiment. Additionally, Ukrainian drone attacks targeting Russian refineries are anticipated to impact Russia’s oil exports negatively. The resurgence in China’s manufacturing activity after six months further bolsters optimism surrounding fuel demand.
Conversely, the US dollar (USD) faces challenges in attracting buyers amidst expectations of an impending rate-cutting cycle by the Federal Reserve (Fed) in June. This sentiment is reinforced by the absence of significant surprises from the US Personal Consumption Expenditures (PCE) Price Index released on Friday. The prevailing risk-on sentiment in the market contributes to the depreciation of the safe-haven dollar, thereby exerting downward pressure on the USD/CAD pair.
Market participants are eagerly awaiting the release of the US ISM Manufacturing PMI for potential market direction ahead of the Bank of Canada (BoC) Business Outlook Survey. Furthermore, developments in oil prices are expected to influence short-term trading opportunities in the USD/CAD pair. However, all eyes remain on the highly anticipated monthly employment reports from both the US and Canada, scheduled for release on Friday.
