USD/CAD retreats further from multi-week high, slides to 1.2975 area amid weaker USD

• USD/CAD turns lower for the second straight day amid the emergence of fresh USD selling.
• Retreating US bond yields, the risk-on impulse exerts some pressure on the safe-haven buck.
• Bets for aggressive Fed rate hikes should limit the USD losses and lend support to the major.

The USD/CAD pair attracts fresh selling following an early uptick to the 1.3025 region and turns lower for the second successive day on Tuesday. The downward trajectory drags spot prices to the 1.2975 area during the early part of the European session and is sponsored by a combination of factors.

Speculations that major producers could cut output to stall the recent fall in crude oil prices assist the black liquid to hold steady near the top end of the monthly range. This, in turn, underpins the commodity-linked loonie. Apart from this, the emergence of fresh US dollar selling contributes to the USD/CAD pair's corrective pullback from a multi-week high touched the previous day.

A further pullback in the US Treasury bond yields, along with the risk-on impulse, drag the safe-haven USD further away from a fresh 20-year high set on Monday. That said, firming expectations that the Fed will stick to a more aggressive policy tightening path should limit the USD losses. In fact, the markets are currently pricing in a greater chance of a 75 bps Fed rate hike in September.

The bets were reaffirmed by more hawkish remarks by Fed Chair Jerome Powell on Friday, signalling that interest rates would be kept higher for longer to bring down inflation. Furthermore, concerns that a deeper global economic downturn will dent fuel demand and hopes for the return of sanctioned Iranian exports should cap crude oil prices, which, in turn, should lend support to the USD/CAD pair.

The fundamental backdrop favours bullish traders, warranting caution before confirming that the recent bounce from the very important 200-day SMA has run out of steam. Market participants now look to the US economic docket - featuring JOLTS Job Openings and the Conference Board's Consumer Confidence Index. This, along with oil price dynamics, might provide some impetus to the USD/CAD pair.

Technical levels to watch