USD/CAD REBOUNDS SHARPLY FROM 1.2700 AS DXY STRENGTHENS AND OIL PRICES PLUNGE

• USD/CAD has rebounded from 1.2700 amid a squeeze in the risk appetite of investors.
• Russia’s attack near the border with NATO member Poland has escalated fears of the third world war.
• The DXY may strengthen further on a likely hawkish monetary policy and risk-off impulse.

The USD/CAD pair has witnessed some significant gains around 1.2700 amid a fresh wave in risk-aversion theme. The risk-off impulse regains its mojo after the Russian missiles attack on a large Ukrainian base near the border with NATO member Poland escalated fears of third world war. An attack on a NATO member is considered as an attack on the whole community. Therefore, investors are returning to safe-haven assets after a positive opening on Monday.

Although investors are not seldom focusing on the Russia-Ukraine war headlines, any negative development on geopolitical tensions will improve the appeal for the defensives.

On the oil front, West Texas Intermediate (WTI) prices are losing their steam as the OPEC cartel confirmed their devotion to fixing the imbalance in the demand-supply mechanism followed by the sanctions on Russian oil imports. Moreover, the Iran-nuclear deal is likely to get a green flag from the US as the world economy has to prepare alternatives from the Russian oil. The oil prices are likely to slip near the round level of $100.00.

Meanwhile, the US dollar index (DXY) is approaching 100.00 on intensifying fears of war escalation beyond Russia and Ukraine. Apart from that, the rising bets over a 50 basis point (bps) by the Federal Reserve (Fed) in monetary policy meeting on Wednesday is underpinning the greenback against the loonie. The 10-year US Treasury yields have jumped above 2% in hopes of an aggressive hawkish stance by the Fed.

In addition to the headlines from the Russia-Ukraine war and Fed’s interest rate decision, investors will also focus on Canada’s Consumer Price Index (CPI) numbers, which are due on Wednesday.