USD/CAD slides further below 1.2700 mark, fresh weekly low amid modest USD weakness

A combination of factors dragged USD/CAD to a fresh weekly low on Wednesday.
An uptick in oil prices underpinned the loonie and exerted downward pressure.
The risk-on mood weighed on the safe-haven USD and added to the selling bias.
Traders eye Canadian CPI, US Retail Sales and FOMC minutes for a fresh impetus.
The USD/USD pair witnessed some selling during the early European session and dropped to a fresh weekly low, around the 1.2685 region in the last hour.

Following a brief consolidation through the first half of the trading on Wednesday, the USD/USD pair met with a fresh supply and was pressured by a combination of factors. An uptick in crude oil prices underpinned the commodity-linked loonie. On the other hand, a generally positive risk tone continued weighing on the safe-haven US dollar, which, in turn, dragged the pair lower for the third successive day.

Russia said on Tuesday that some of its troops were returning to bases following exercises near the Ukraine border and eased fears about a full-blown conflict with the West. This triggered a fresh wave of the global risk-on trade, which was evident from the bullish moves across the equity markets and drove flows away from traditional safe-haven assets. That said, elevated US Treasury bonds should limit deeper USD losses.
The markets seem convinced that the Fed would tighten its policy at a faster pace than anticipated to combat stubbornly high inflation and have been pricing in the possibility of a 50 bps rate hike in March. This, in turn, pushed the yield on the benchmark 10-year US government bond back above the 2.0% mark, closer to last week’s swing high touched in reaction to the hottest inflation reading in four decades.

Hence, the market focus will remain on the FOMC meeting minutes, due for release later during the US session. Investors will look for fresh clues about the likely pace of the Fed’s policy tightening cycle, which will influence the near-term trajector for the USD and the USD/CAD pair. In the meantime, the Canadian CPI report and the US monthly Retail Sales data might produce some short-term trading opportunities.