USD/CAD retreats from multi-week top amid positive Oil prices, weaker USD, ahead of US PCE data

• USD/CAD pulls back from a nearly one-month high and is pressured by a combination of factors.
• A pickup in Oil prices undermines the Loonie and weighs on the pair amid a modest USD slide.
• Hawkish Fed expectations should help limit the downside ahead of the US Core PCE Price Index.

The USD/CAD pair retreats from a nearly one-month high, around the 1.3655 region touched earlier this Friday and remains on the defensive through the mid-European session. The pair languishes near the lower of the daily trading range and is pressured by a combination of factors, though manages to hold its neck above the 1.3600 round-figure mark.

Crude Oil prices gain some positive traction and recover a part of the previous day's slump, which, in turn, is seen underpinning the commodity-linked Loonie. The US Dollar (USD), on the other hand, pulls back from over a two-month high set on Thursday amid a modest downtick in the US Treasury bond yields and further contributes to a mildly offered tone surrounding the USD/CAD pair. That said, the uncertainty over OPEC’s plans for future production cuts, along with worries that a global economic slowdown will dent fuel demand, keep a lid on any meaningful upside for Oil prices.

Apart from this, expectations that the Federal Reserve (Fed) will keep interest rates higher for longer favour the USD bulls and should help limit the downside for the USD/CAD pair, at least for the time being. In fact, the markets started pricing in the possibility of another 25 bps lift-off at the June FOMC meeting following the recent hawkish comments by a slew of US central bank officials. Furthermore, Thursday's better-than-expected US macro data pointed to a resilient US economy and should allow the Fed to stick to its hawkish stance to combat stubbornly high inflationary pressures.

Hence, the market focus will remain glued to the release of the US Core PCE Price Index - the Fed's preferred inflation gauge - due later during the early North American session. Friday's US economic docket also features Durable Goods Orders, which, along with the US bond yields and the US debt ceiling crisis, will drive the USD demand. Apart from this, Oil price dynamics might provide some impetus to the USD/CAD pair. Nevertheless, spot prices remain on track to register strong weekly gains, though bulls might wait for a move beyond the 1.3665-1.3670 area before placing fresh bets.

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