USD/CAD sticks to modest gains above 1.2600 mark, rallying oil prices to cap the upside

• USD/CAD gained some positive traction on Monday and snapped four days of the losing streak.
• The Fed’s hawkish outlook acted as a tailwind for the USD and remained supportive of the move.
• Bullish crude oil prices underpinned the loonie and might cap any meaningful gains for the pair.

The USD/CAD pair held on to its modest intraday gains through the first half of the European session and was last seen trading just a few pips above the 1.2600 mark.

The pair attracted some dip-buying in the vicinity of the monthly low on Monday, though the attempted recovery lacked bullish conviction and was capped by a combination of factors. Crude oil prices rallied over 4% on the first day of a new week and underpinned the commodity-linked. This, along with subdued US dollar price action, acted as a headwind for the USD/CAD pair, at least for the time being.

Oil prices built on last week's goodish rebound from the monthly low and gained strong follow-through traction amid reports that the European Union will consider whether to impose an oil embargo on Russia. Adding to this, attacks by Yemen's Iran-aligned Houthi group caused a temporary drop in output at a Saudi Aramco refinery joint venture in Yanbu and provided an additional lift to the black liquid.

On the other hand, the US dollar, so far, has struggled to gain any meaningful traction, which, in turn, failed to impress bullish traders or provide any meaningful impetus to the USD/CAD pair. That said, the Fed's hawkish outlook, indicating that it could raise rates at all the six remaining meetings in 2022, helped limit any downside for the buck and extended some support to the major.

Nevertheless, the USD/CAD pair, for now, seems to have snapped four successive days of the losing streak and remains at the mercy of fresh developments surrounding the Russia-Ukraine saga. Apart from this, traders will take cues from Fed Chair Jerome Powell's scheduled speech later during the US session, which, along with the USD and oil price dynamics, should provide some impetus to the pair.

Technical levels to watch