USD/CAD sticks to modest intraday gains around 1.3470-75 area, lacks bullish conviction

• USD/CAD regains positive traction on Thursday and draws support from sustained USD buying.
• A modest downtick in Oil prices undermines the Loonie and contributes to the intraday uptick.
• The fundamental backdrop favours bullish traders and supports prospects for additional gains.

The USD/CAD pair attracts fresh buying on Thursday and maintains its bid tone through the first half of the European session, reversing a major part of the previous day's modest losses. The pair currently trades around the 1.3470-1.3475 region, up less than 0.15% for the day, and is influenced by a combination of diverging forces.

The US Dollar (USD) scales higher for the third successive day, also marking the fifth day of a positive move in the previous six, and climbs to a fresh high since March 24, which, in turn, lends some support to the USD/CAD pair. The recent hawkish comments by several Federal Reserve (Fed) officials fueled speculations that the US central bank will keep interest rates higher for longer. This, along with the US debt ceiling optimism, remains supportive of elevated US Treasury bond yields and continues to push the USD higher.

In fact, US President Joe Biden and top congressional Republican Kevin McCarthy underscored their determination to strike a deal soon to raise the government's $31.4 trillion debt ceiling. This helps calm fears of an unprecedented American debt default and boosts investors' confidence, which is evident from a generally positive tone around the equity markets and might cap the safe-haven Greenback. Apart from this, the overnight rally in Crude Oil prices underpins the commodity-linked Loonie and keeps a lid on the USD/CAD pair.

A sharp drop in US gasoline inventories pointed to some improvement in demand and helped the black liquid to register strong gains of more than $2 on Wednesday. Market participants remain worried that a global economic slowdown, particularly in China, will dent fuel demand. This, in turn, acts as a headwind for Oil prices and supports prospects for a further appreciating move for the USD/CAD pair. That said, the overnight failure to find acceptance above the 100-day Simple Moving Average (SMA) warrants caution for bulls.

Market participants now look to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales later during the early North American session. Traders will further take cues from speeches by influential FOMC members. Apart from this, the US bond yields, the US debt-limit negotiations and the broader risk sentiment will drive the USD demand. This, along with Oil price dynamics, might contribute to producing short-term trading opportunities around the USD/CAD pair.

Technical levels to watch