USD/CAD bounces off multi-week low, shows resilience below 1.3400 amid sliding Oil prices

• USD/CAD meets with a fresh supply on Tuesday and drops to a nearly four-week low.
• Weaker Oil prices undermine the Loonie and lend support amid a modest USD bounce.
• The mixed fundamental backdrop warrants some caution before placing directional bets.

The USD/CAD pair struggles to capitalize on the previous day's modest gains and comes under some renewed selling pressure on Tuesday. Spot prices continue drifting lower through the early part of the European session and drop to a nearly four-week low in the last hour, albeit showed some resilience below the 1.3400 round-figure mark.

The initial market reaction to additional supply cuts by Saudi Arabia and OPEC fades rather quickly amid persistent concerns over slowing economic growth and weakening demand. This, in turn, drags Crude Oil prices lower for the second straight day, which, along with the emergence of some US Dollar (USD) dip-buying, helps limit the intraday losses for the USD/CAD pair. Any meaningful upside for the USD, however, seems limited amid expectations that the Federal Reserve (Fed) will skip hiking interest rates next week.

In fact, the current market pricing indicates a greater chance that the US central bank will leave interest rates unchanged at the June policy meeting. Against the backdrop of last week's dovish rhetoric from several FOMC officials, the disappointing release of the US ISM Services PMI on Monday, which fell to 50.3 in May, reaffirmed market bets for an imminent pause in the Fed's rate-hiking cycle. This keeps the US Treasury bond yields depressed, which might hold back the USD bulls from placing bets and cap the USD/CAD pair.

That said, the prevalent cautious market mood could lend some support to the safe-haven Greenback and the USD/CAD pair. In the absence of any relevant market-moving economic releases from the US, the mixed fundamental backdrop makes it prudent to wait for some follow-through selling before positioning for any further depreciating move. Market participants now look to the release of the Canadian Ivey PMI, which, along with Oil price dynamics, might influence the Canadian Dollar (CAD) and provide some impetus to the major.

Technical levels to watch