USD/CAD steadily moves back above 1.3700 mark, lacks follow-through buying

• USD/CAD recovers early lost ground amid a modest USD recovery from the daily low.
• Fears of a full-blown banking crisis drive some haven flows and benefit the Greenback.
• An intraday move up in Oil prices could underpin the Loonie and cap any further gains.

The USD/CAD pair attracts some dip-buying near the 1.3680-1.3675 region on Friday and has now reversed a major part of its intraday losses. The pair climbs back above the 1.3700 round-figure mark during the mid-European session, though the intraday uptick lacks bullish conviction.

Crude Oil prices regain positive traction on the last day of the week and move away from a 15-month low touched on Thursday amid hopes for a strong recovery in Chinese fuel demand. This, in turn, is seen underpinning the commodity-linked Loonie and acting as a headwind for the USD/CAD pair amid a modest US Dollar weakness. Expectations that the Fed will adopt a less aggressive hawkish stance in the wake of worsening economic conditions weigh on the USD.

Last week's collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - forced investors to scale back bets for more aggressive policy tightening by the US central bank. In fact, the markets are now pricing in a greater chance of a smaller 25 bps lift-off at the upcoming FOMC monetary policy meeting on March 21-22. This is evident from a fresh leg down in the US Treasury bond yields and turns out to be a key factor exerting downward pressure on the buck.

That said, a generally weaker risk tone drives some haven flows towards the Greenback and assists the USD/CAD pair to reverse the early lost ground. Despite multi-billion-dollar lifelines for troubled banks in the US and Europe, investors remain worried about widespread contagion and the possibility of a full-blown global banking crisis. This, along with looming recession fears, takes its toll on the global risk sentiment and benefits traditional safe-haven currencies.

Furthermore, the fact that the Bank of Canada (BoC) became the first major central bank to pause its rate-hiking cycle last week could undermine the Canadian Dollar. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the upside and supports prospects for a move back towards reclaiming the 1.3800 mark. Traders now look to the release of the Michigan US Consumer Sentiment Index to grab short-term opportunities heading into the weekend.

Technical levels to watch