USD/CAD turns positive for the second straight day, climbs back above mid-1.3600s

• USD/CAD reverses an intraday dip amid the emergence of fresh buying around the USD.
• Expectations for more aggressive Fed rate hikes, recession fears lift the safe-haven buck.
• A modest pullback in oil prices undermines the loonie and also offers support to the pair.

The USD/CAD pair attracts some dip-buying near the 1.3565 area and moves into positive territory for the second successive day on Thursday. The uptick lifts spot prices back above mid-1.3600s during the first half of the European session and is sponsored by a modest US dollar strength.

The recent hawkish comments by several Fed officials reaffirmed expectations that the US central bank will tighten its monetary policy at a faster pace to tame inflation. In fact, the markets have been pricing in another supersized 75 bps Fed rate hike move in November. This, in turn, remains supportive of elevated US Treasury bond yields, which, along with a weaker risk tone, continues to act as a tailwind for the safe-haven greenback.

The market sentiment remains fragile amid worries about the economic headwinds stemming from rapidly rising borrowing costs. Furthermore, investors remain concerned that a deeper global economic downturn will dent fuel demand. This leads to a modest pullback in crude oil prices from a three-week high touched earlier this Thursday and undermines the commodity-linked loonie, which further contributes to the USD/CAD pair's intraday move up.

Despite the uptick, spot prices remain confined well within the previous day's broader trading range. The fundamental backdrop, however, supports prospects for an extension of this week's bounce from the 1.3500 psychological mark. Traders now look forward to Thursday's economic docket, featuring the US Weekly Initial Jobless Claims data and Canadian Ivey PMI. This, along with oil price dynamics, could provide some impetus to the USD/CAD pair.

Technical levels to watch