USD/CAD flirts with daily low, below 1.3000 mark amid the intraday USD selling bias

• USD/CAD retreated further from the YTD high touched on Friday amid modest USD weakness.
• Hawkish Fed expectations and recession fears might continue to act as a tailwind for the buck.
• Sliding crude oil prices could undermine the loonie and help limit deeper losses for the major.

The USD/CAD pair witnessed some selling on the first day of a new week and moved further away from the fresh YTD peak, around the 1.3075 region touched on Friday. The pair maintained its offered tone through the first half of the European session and was last seen flirting with the daily low, around the 1.2985 region.

The Fed forecasted the rate to decline to 3.4% in 2024 and 2.5% over the long run from the anticipated 3.8% in 2023, which was seen as a key factor behind the recent sharp decline in the US Treasury bond yields. Apart from this, concerns that a more aggressive policy tightening by the Fed would pose challenges to the US economic growth kept the US dollar bulls on the defensive. This, in turn, exerted some downward pressure on the USD/CAD pair, though any meaningful downside seems elusive.

Crude oil prices languished near a one-month low amid worries that the softening global economic growth would temper fuel demand. This could undermine the commodity-linked loonie and act as a tailwind for the USD/CAD pair. Furthermore, acceptance that the Fed would hike interest rates at a faster pace to curb soaring inflation favours the USD bulls. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair and warrants caution for bearish traders.

In the absence of any major market-moving economic releases, traders will take cues from a scheduled speech by St. Louis Fed President James Bullard, which might influence the USD. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair amid relatively lighter trading volumes on the back of a holiday in the US.

Technical levels to watch