Ella 
In the Asian market on Monday, the US dollar/Canadian dollar rose, but there was a lack of follow-up buying and it was still limited to Friday’s larger trading range. Spot USD/CAD prices are currently trading just above the mid-1.3300 level and appear poised to extend the recent strong rebound from the five-month low hit in December.
Crude oil prices are under renewed selling pressure following Saudi Arabia’s decision to cut the February official selling price (OSP) for Arabian Light crude to Asia to the lowest level since November 2021. This in turn is therefore seen as a key factor weighing on the commodity-linked ruble and acting as a tailwind for USD/CAD. That said, the escalation of the Israel-Hamas conflict, as well as continued disruptions to shipping activity in the Red Sea, should help prevent a significant decline in oil prices.
Beyond that, a weak U.S. dollar (USD) could prevent aggressive bullish bets on USD/CAD and limit its upside. Friday’s strong U.S. jobs report for December was largely offset by a weak ISM non-manufacturing purchasing managers’ index, which showed business activity in the services sector fell to its lowest level since May. This added to the uncertain outlook for the Federal Reserve’s (FED) interest rate cut path and failed to boost the dollar.
At the same time, Dallas Fed President Lorie Logan pointed out that if the Fed does not maintain sufficiently tight financial conditions, inflation may pick up, thereby preventing the Fed from responding to inflation. Earlier, Richmond Fed President Thomas Barkin said last week that he believed the economy was on the way to a soft landing and said raising interest rates was still under consideration. This remains supportive of rising U.S. bond yields, which, coupled with a fresh decline in U.S. stock futures, should benefit the safe-haven dollar.
The fundamental backdrop above appears to be favorable for USD/CAD bulls, supporting the prospects for further gains in USD/CAD. However, market participants may prefer to stay on the sidelines and focus on the latest U.S. consumer inflation data due on Thursday before making bets in a new direction. Meanwhile, a scheduled speech by Atlanta Fed President Raphael Bostic, as well as the performance of U.S. bond yields and broader risk sentiment, could influence dollar trends. Beyond that, oil price dynamics will also provide some impetus to USD/CAD.
