USD/CAD climbs back closer to mid-1.3000s amid weaker oil prices, broad-based USD strength

• USD/CAD gained traction for the second straight day and was supported by a combination of factors.
• Weaker crude oil prices undermined the loonie and extended support amid relentless USD buying.
• Aggressive Fed rate hike bets, along with recession fears, pushed the USD to a fresh 20-year high.

The USD/CAD pair attracted fresh buying near the 1.2990 area on Tuesday and turned positive for the second straight day. The pair built on its steady ascent through the early European session and climbed back closer to mid-1.3000s, or a fresh daily high in the last hour.

Fresh COVID-19 curbs in China, along with growing recession fears, raised concerns about the fuel demand outlook and weighed on crude oil prices. This, in turn, undermined the commodity-linked loonie and pushed the USD/CAD pair higher amid sustained US dollar buying.

The FOMC minutes released last week reaffirmed bets for a faster policy tightening by the Fed. In fact, policymakers emphasized the need to fight inflation even if it results in an economic slowdown. This was seen as a key factor that continued boosting the greenback.

The worsening global economic outlook led to an extended selloff in the equity markets, which further benefitted the safe-haven buck. This, to a larger extent, helped offset declining US Treasury bond yields and pushed the USD to a fresh two-decade high on Tuesday.

It would now be interesting to see if the USD/CAD pair is able to capitalize on the move or meet with a fresh supply at higher levels. Traders might refrain from placing aggressive bullish bets and prefer to move on the sidelines ahead of this week's key event/data risk.

The US consumer inflation figures are due for release on Wednesday, which will be followed by the Bank of Canada monetary policy decision. Traders will further take cues from the US Retail Sales data and the Prelim Michigan Consumer Sentiment, scheduled on Friday.

In the meantime, the broader market risk sentiment would continue to drive the USD demand amid absent relevant market moving-economic data. Apart from this oil price dynamics should provide some impetus to the USD/CAD pair and allow traders to grab short-term opportunities.

Technical levels to watch