USD/CAD remains depressed below 1.3600 mark amid rising oil prices, weaker USD

• A combination of factors prompts aggressive selling around USD/CAD on Tuesday.
• Rising oil prices underpin the loonie and exert pressure amid a modest USD downtick.
• The downside seems limited amid recession fears and ahead of the FOMC meeting.

The USD/CAD pair comes under heavy selling pressure on Tuesday and extends the overnight late pullback from the 1.3685 region, or a multi-day high. The downward trajectory drags spot prices to a fresh daily low, around mid-1.3500s during the early European session and is sponsored by a combination of factors.

Crude oil prices regain positive traction after OPEC said that demand will be higher than initially expected in the medium to long term. This, in turn, underpins the commodity-linked loonie and exerts some downward pressure on the USD/CAD pair amid the emergence of some selling around the US dollar.

The global risk sentiment gets a boost following the release of Chinese Caixin Manufacturing PMI, which improved to 49.2 in October from 48.1 previous. The upbeat market mood, along with speculations that the Fed will soften its hawkish stance amid signs of a slowdown in the US economy, is seen weighing on the safe-haven greenback.

Investors, however, remain concerned about the fuel demand outlook in the wake of China's strict zero-COVID policy amid the resurgence of cases in Shanghai and Wuhan. This could act as a headwind for the black liquid. Apart from this, the protracted Russia-Ukraine war might also contribute to keeping a lid on any optimism in the markets.

Furthermore, expectations that the Fed will deliver another supersized 75 bps rate hike at the end of a two-day policy meeting on Wednesday should limit the downside for the buck. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair and warrants some caution for aggressive bearish traders.

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

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