USD/CAD retreats from multi-week high, drops to 1.3000 amid an uptick in oil prices

• USD/CAD retreats from a multi-week high and is pressured by a combination of factors.
• Some follow-through rise in crude oil prices underpin the loonie and act as a headwind.
• A turnaround in the risk sentiment prompts some USD profit-taking and exerts pressure.
• Recession fears, hawkish Fed expectations might limit the USD pullback and lend support.

The USD/CAD pair comes under some selling pressure on Tuesday and snaps a four-day winning streak to a six-week high. The intraday downtick picks up pace during the early European session and drags spot prices to a fresh daily low, back closer to the 1.3000 psychological mark.

Crude oil prices gain traction for the second successive day and climb to a one-and-half-week high. This, in turn, is seen underpinning the commodity-linked loonie and exerting downward pressure on the USD/CAD pair. Concerns over tight global supply resurfaced after Saudi Arabia warned that the major oil producer could cut output to stall the recent fall in oil price, which continued boosting the black liquid.

The US dollar, on the other hand, eases a bit from a fresh two-decade high touched earlier this Tuesday and further contributes to the offered tone surrounding the USD/CAD pair. A sharp intraday recovery in the equity markets prompts some profit-taking around the safe-haven greenback. That said, recession fears might keep a lid on any optimism, which, along with hawkish Fed expectations should limit the USD pullback.

Despite signs of easing US inflation, the recent comments by several Fed officials suggested that the US central bank would stick to its policy tightening path. Adding to this, the FOMC meeting minutes released last week indicated that the Fed would continue hiking rates to tame inflation. Moreover, market participants expect a hawkish message from Fed Chair Jerome Powell's speech at the Jackson Hole symposium on Friday.

The hawkish Fed expectations support prospects for the emergence of dip-buying around the USD. Apart from this, worries that a global economic downturn would dent fuel demand should act as a headwind for crude oil prices and cap gains for the Canadian dollar. This, in turn, could further lend some support to the USD/CAD pair, warranting some caution for bearish traders and confirming that spot prices have topped out.

Market participants now look forward to the US economic docket, featuring the release of the flash PMI prints later during the early North American session. This, along with the broader risk sentiment, will influence the USD and provide some impetus to the USD/CAD pair. Traders will further take cues from oil price dynamics to grab short-term opportunities.

Technical levels to watch