USD/CAD drops to multi-week low amid recovering Oil prices, softer USD

• USD/CAD remains under heavy selling pressure for the fourth successive day on Monday.
• A further recovery in Oil prices underpins the Loonie and drags the pair to a multi-week low.
• A weaker USD contributes to the fall amid some technical selling below the 200-day SMA.

The USD/CAD pair prolongs its bearish trajectory for the fourth successive day on Monday and dives to over a three-week low, around the 1.3325-1.3320 region heading into the North American session.

Crude Oil prices build on last week's solid rebound from a 17-month low and gain strong follow-through traction for the third straight day amid the optimism over a fuel demand recovery in the wake of easing concerns about an imminent recession. This, along with Friday's upbeat Canadian monthly employment details, underpins the commodity-linked Loonie. Apart from this, a modest US Dollar (USD) weakness contributes to the heavily offered tone surrounding the USD/CAD pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near the monthly low set last week amid growing acceptance for an imminent pause in the Federal Reserve's (Fed) over a year-long rate-hiking cycle. The Fed Fund futures point to a 90% probability that the US central bank will hold interest rates steady in June. Moreover, the markets have also started pricing in the possibility that the Fed beginning cutting rates in the second half of this year.

This, along with worries about a full-blown banking crisis and the US debt ceiling, keeps the USD bulls on the defensive amid a positive risk tone and exerts additional downward pressure on the USD/CAD pair. That said, a goodish intraday pickup in the US Treasury bond yields helps limit deeper losses for the Greenback as traders now look to the latest US consumer inflation figures for a fresh impetus. This, in turn, could lend some support to the major and warrants some caution for bearish traders.

From a technical perspective, Friday's decisive break and close below the very important 200-day Simple Moving Average (SMA) marked a fresh breakdown. This, in turn, supports prospects for a further near-term depreciating move. Hence, any attempted recovery runs the risk of fizzling out rather quickly and is more likely to remain capped, at least for the time being, in the absence of any relevant market-moving economic releases, either from the US or Canada.

Technical levels to watch