USD/CAD struggles for a firm direction, remains confined in a range around 1.3600 mark

• USD/CAD struggles to gain any meaningful traction and oscillates in a range on Monday.
• Retreating US bond yields keeps the USD bulls on the defensive and acts as a headwind.
• A modest downtick in Oil prices undermines the Loonie and lends support to the major.

The USD/CAD pair kicks off the new week on a subdued note and seesaws between tepid gains/minor losses, around the 1.3600 mark heading into the European session. The pair, meanwhile, remains within Friday's broader trading range and is influenced by a combination of diverging forces.

A softer tone surrounding the US Treasury bond yields keeps the US Dollar bulls on the defensive, which, in turn, acts as a headwind for the USD/CAD pair. That said, a modest pullback in Crude Oil prices - amid worries that a deeper global economic downturn will dent fuel demand - undermines the commodity-linked Loonie and lends some support to the major. The fears resurfaced after China set a lower-than-expected target for economic growth and forecast that the economy would expand by 5% in 2023.

Apart from this, growing acceptance that the Federal Reserve will stick to its hawkish stance favour the USD bulls and support prospects for the emergence of some dip-buying around the USD/CAD pair. The incoming US macro data indicated that inflation isn't coming down quite as fast as hoped and pointed to an economy that remains resilient despite rising borrowing costs. Adding to this, a slew of FOMC members backed the case for higher rate hikes and opened the door for a 50 bps lift-off at the March policy meeting.

Hence, the market focus will remain glued to Fed Chair Jerome Powell's semi-annual congressional testimony on Tuesday and Wednesday. Powell's comments will be closely scrutinized for clues about the Fed's future rate-hike path, which will play a key role in influencing the near-term trajectory of the USD. Investors this week will also confront the release of the closely-watched US monthly jobs report, popularly known as NFP on Friday, to determine the next leg of a directional move for the USD/CAD pair and before placing aggressive bets.

Heading into the key event/data risks, the US bond yields and the broader market risk sentiment will continue to drive the USD demand and provide some impetus to the USD/CAD pair. Apart from this, Oil price dynamics should allow traders to grab short-term opportunities in the absence of any relevant market-moving economic releases on Monday, either from the US or Canada. Nevertheless, the aforementioned fundamental backdrop favours bullish traders and suggests that the path of least resistance for the major is to the upside.

Technical levels to watch