USD/CAD bounces off two-week low amid resurgent USD demand, bullish oil prices to cap gains

• The emergence of aggressive USD dip-buying assisted USD/CAD to pare its intraday losses.
• Bullish crude oil prices continued underpinning the loonie and caped any meaningful upside.
• Investors now look forward to the US economic data for some short-term trading impetus.

The USD/CAD pair recovered a few pips from over a two-week low touched earlier this Tuesday and was last seen trading just below mid-1.2800s, still down over 0.25% for the day.

Bullish crude oil prices underpinned the commodity-linked loonie and dragged the USD/CAD pair lower for the third successive day. G7 leaders agreed to explore price caps on imports of Russian oil and gas, fueling supply concerns. Apart from this, the easing of COVID-19 curbs in China lifted hopes for demand recovery and lifted crude oil prices to a one-week high.

On the other hand, the US dollar made a solid comeback and snapped a two-day losing streak to over a one-week low amid a goodish pickup in the US Treasury bond yields. This, in turn, assisted the USD/CAD pair to find decent support near the 1.2820-1.2815 region and stall its intraday bearish trajectory, though any meaningful upside still seems elusive.

Investors turned optimistic amid hopes that inflation is nearing its peak, which was evident from the prevalent risk-on mood around the equity markets. The softening inflation expectations also seem to have forced investors to scale back their expectations for a more aggressive policy tightening by the Fed, which might keep a lid on any further gains for the buck.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent pullback from the YTD peak has run its course and placing fresh bullish bets around the USD/CAD pair. Market participants now look forward to the US economic docket - featuring the release of the Conference Board's Consumer Confidence Index and Richmond Manufacturing Index.

The data, along with the US bond yields and the broader market risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Traders will further take cues from oil price dynamics to grab short-term opportunities around the major. The focus, however, would remain on the OPEC+ meeting and Fed Chair Jerome Powell's appearance on Wednesday.

Technical levels to watch