USD/CAD recovers early lost ground, retakes 1.3000 amid a sharp fall in oil prices

• USD/CAD reverses an intraday dip and is supported by a combination of factors.
• A sharp pullback in crude oil prices undermines the loonie and acts as a tailwind.
• A modest USD rebound from the daily low contributes to the intraday move up.
• Retreating US bond yields, the risk-on mood might cap the USD and the major.

The USD/CAD pair bounces a few pips from the daily low and moves back above the 1.3000 psychological mark ahead of the Wall Street opening.

Crude oil prices retreat sharply from a one-month high touched earlier this Tuesday amid concerns that a deeper global economic downturn would hurt fuel demand. Apart from this, hopes for the resumption of sanctioned Iranian oil exports overshadow expectations that major oil producers could cut output and weigh on the black liquid. This, in turn, undermines the commodity-linked loonie and assists the USD/CAD pair to attract some dip-buying near the 1.2970 region.

The US dollar, on the other hand, trims a part of its modest intraday losses and further contributes to the USD/CAD pair's intraday bounce. Growing acceptance that the Fed will continue to tighten its policy at a faster pace turn out to be a key factor acting as a tailwind for the greenback. That said, a further decline in the US Treasury bond yields, along with the risk-on impulse, might keep a lid on any meaningful upside for the safe-haven buck and cap the upside for the major.

This, in turn, makes it prudent to wait for some follow-through buying beyond the daily swing high, around the 1.3025 region, before positioning for any meaningful intraday appreciating move. Market participants now look forward to the US economic docket - featuring JOLTS Job Openings and the Conference Board's Consumer Confidence Index. The data might influence the USD demand, which, along with oil price dynamics, should produce short-term opportunities around the USD/CAD pair.

Technical levels to watch