USD/CAD hangs near daily low, below 1.3400 mark ahead of key US GDP report

• USD/CAD surrenders modest intraday gains and slides back below the 1.3400 mark.
• An uptick in oil prices underpins the Loonie and acts as a headwind for the major.
• A modest USD strength should limit the downside ahead of the US Q4 GDP report.

The USD/CAD pair struggles to capitalize on its modest intraday gains and retreats to the lower end of the daily range, below the 1.3400 mark heading into the North American session.

As investors look past the Bank of Canada's dovish decision on Wednesday, a modest uptick in crude oil prices underpins the commodity-linked Loonie and acts as a headwind for the USD/CAD pair. Hopes for a strong fuel demand recovery in the world's top oil importer China, along with the lower-than-expected rise in US crude inventories, lend some support to the black liquid. That said, worries about a deeper global economic downturn keep a lid on oil prices.

Apart from this, a modest US Dollar strength should limit any meaningful downside for the USD/CAD pair, at least for the time being. Looming recession risks continue to weigh on investors' sentiment, which is evident from a generally softer tone around the equity markets. Furthermore, an intraday pickup in the US Treasury bond yields assists the safe-haven greenback to recover from an eight-month low amid some repositioning trade ahead of the US Q4 GDP print.

That said, firming expectations for a less aggressive policy tightening by the Fed should cap the US bond yields and hold back the USD bulls on the defensive. In fact, the CME's FedWatch Tool points to over a 90% probability for a 25 bps rate hike at the upcoming FOMC meeting next week. This, in turn, warrants some caution before placing aggressive bullish bets around the USD/CAD pair and positioning for an extension of the overnight bounce from a nearly two-week low.

The focus, meanwhile, remains glued to the release of the Preliminary (first estimate) US Q4 GDP print. Thursday's US economic docket also features Durable Goods Orders and New Home Sales data. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the major.

Technical levels to watch