USD/CAD surrenders modest intraday recovery gains, retreats to 1.3700 mark

• USD/CAD struggles to capitalize on its goodish rebound from over a one-week low.
• The risk-on impulse is weighing on the safe-haven buck and acting as a headwind.
• Bearish oil prices undermine the loonie and should help limit any meaningful slide.

The USD/CAD pair stages a goodish recovery from a one-and-half-week low touched earlier this Tuesday, though the momentum falters near the 1.3780 region. Spot prices retreat to the 1.3700 mark during the early North American session and remain at the mercy of the US dollar price dynamics.

The prevalent risk-on mood - as depicted by a strong follow-through rally in the equity markets - fails to assist the safe-haven buck to capitalize on its modest intraday gains. This, in turn, acts as a headwind for the USD/CAD pair, though a combination of factors warrants caution for bearish traders and before positioning for deeper losses.

The prospects for a more aggressive policy tightening by the Fed might continue to lend support to the greenback and warrant some caution before placing bearish bets around the USD/CAD pair. In fact, the current market pricing indicates a nearly 100% chance of the fourth successive supersized 75 bps Fed rate hike move in November.

Furthermore, worries that a deeper global economic downturn will dent fuel demand weigh on crude oil prices. This could undermine the commodity-linked loonie and further contribute to limiting the downside for the USD/CAD pair. Hence, it will be prudent to wait for strong follow-through selling before confirming that spot prices have topped out.

Market participants now look to Industrial Production data and Capacity Utilization Rate for some impetus. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand. Traders will further take cues from oil price dynamics, though the focus will remain on the Canadian consumer inflation figures on Wednesday.

Technical levels to watch