USD/CAD sticks to modest intraday gains, lacks follow-through and remains below 1.3300

• USD/CAD gains some positive traction on Monday and draws support from a combination of factors.
• A downtick in Oil prices undermines the Loonie and acts as a tailwind amid reviving USD demand.
• The fundamental backdrop, however, warrants some caution before placing aggressive bullish bets.

The USD/CAD pair attracts some buying on the first day of a new week and for now, seems to have stalled its rejection slide from the 50-day Simple Moving Average (SMA), around the 1.3385 area, or a nearly one-month high touched on Friday. Spot prices, however, struggle to capitalize on the modest intraday uptick and remain below the 1.3300 mark through the Asian session.

Crude Oil prices pull back from a five-week high, which, in turn, undermines the commodity-linked Loonie and turns out to be a key factor acting as a tailwind for the USD/CAD pair. The US Dollar (USD), on the other hand, regains some positive traction and reverses a part of Friday's post-NFP downfall to its lowest level since June 22. This lends additional support to the major, though reduced bets for additional rate hikes by the Federal Reserve (Fed), after the one expected in July, keep a lid on any meaningful appreciating move.

The strong US wage growth data and a slight drop in the unemployment rate should allow the Fed to raise interest rates at its upcoming policy meeting on July 25-26. This remains supportive of elevated US Treasury bond yields and helps revive the USD demand. That said, signs that the US labor market conditions were finally easing and that the inflation is gradually slowing, fueled speculations that the Fed will eventually soften its hawkish. This might hold back the USD bulls from placing aggressive bets and cap the USD/CAD pair.

Furthermore, the recent announcement by the world's biggest oil exporters - Saudi Arabia and Russia - to deepen supply cuts in August should limit the downside for Oil prices. Traders also seem reluctant and prefer to wait on the sidelines ahead of this week's release of the latest US consumer inflation figures on Wednesday. This further makes it prudent to wait for strong follow-through buying around the USD/CAD pair before positioning for the resumption of the recent recovery from the 1.3115 area, or the YTD low touched in June.

Technical levels to watch