- USD/CAD gained some positive traction on Monday amid a modest pickup in the USD demand.
- Bullish crude oil prices might underpin the loonie and keep a lid on any further gains for the pair.
- Investors might also refrain from placing aggressive bets ahead of the key FOMC policy decision.
The USD/CAD pair edged higher through the early European session and climbed to a four-day high, around the 1.2745 region in the last hour.
Having defended the 1.2700 mark, the USD/CAD pair caught some bids on the first day of a new week and is now looking to build on last week’s post-BoC recovery from the vicinity of the 1.2600 mark. The uptick was exclusively sponsored by a pickup in demand for the US dollar and seemed unaffected by an uptick in crude oil prices, which tend to underpin the commodity-linked loonie.
The USD was back in demand amid firming expectations that the Fed would tighten its monetary policy sooner rather than later to contain stubbornly high inflation. The speculations were reinforced after data released on Friday showed that the headline US CPI accelerated to the highest level since 1982 in November. Adding to this, the core CPI recorded the sharpest rise since mid-1991.
Meanwhile, easing concerns that the Omicron coronavirus variant would have a limited impact on the global fuel demand acted as a tailwind for oil prices. Apart from this, the prevalent risk-on mood could undermine the safe-haven greenback and cap the upside for the USD/CAD pair. This warrants some caution for aggressive bullish traders and positioning for any further gains.
Investors might also be reluctant, rather prefer to wait on the sidelines ahead of this week’s key event risk – the highly-anticipated FOMC monetary policy decision on Wednesday. Given that the markets have been pricing in the possibility for an eventual liftoff in May 2022, the outcome will influence the USD demand and provide a fresh directional impetus to the USD/CAD pair.
In the meantime, the broader market risk sentiment will drive the safe-haven greenback. Apart from this, traders will further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair amid absent relevant market moving economic releases.