USD/CAD inter-markets: continuous slide in oil prices should support ongoing recovery trend

The USD/CAD pair built on yesterday's strong up-surged and touched a two-week high level beyond 1.3200 handle. 

Monday's strong up-move was supported by hawkish comments from Philadelphia Fed President Patrick Harker who emphasized a March rate hike was still possible. Although the comments did little to impact market expectations, with CME Group's FedWatch Tool still pointing to over 90% probability of status quo monetary policy at the Fed's next monetary policy meeting in March, but supported the US Dollar's recovery move. 

Adding to this, declining crude oil prices further weighed on the commodity-linked currency - Loonie, and provided an additional boost to the pair's up-move. The move was further reinforced by a recovery in the treasury bond yields. 

The pair, however, has retreated around 40-pips from highs and is currently trading around 1.3170-75 region following the release of trade balance data from the US and Canada. The pair's latest leg of retreat was also led by increasing divergence between the US and Canadian Treasury bond yields. 

Meanwhile, weaker sentiment surrounding oil markets, with WTI crude oil now trading with a loss of over 1.5%, lent support and limited any follow through downslide for the major.

With the economic docket out of the way, and Canadian treasury bond yields moving in tandem with the US, the pair remains at the mercy of crude oil price dynamics, which if continues to drift lower should assist the pair to extend its ongoing recovery move from last week’s sub-1.30 level.