USD/CAD hits two-month high, bulls await move beyond 100-day SMA hurdle near 1.3400

• A combination of supporting factors lifts USD/CAD to a fresh two-month top on Tuesday.
• Softer Oil prices undermine the Loonie and act as a tailwind amid renewed USD buying.
• Hawkish Fed expectations remain supportive of elevated US bond yields and lift the USD.

The USD/CAD pair touches a two-month peak during the Asian session on Tuesday, with bulls now awaiting a sustained move beyond the 100-day Simple Moving Average (SMA) barrier around the 1.3400 mark before placing fresh bets.

The Canadian Dollar (CAD) continues to be weighed down by the disappointing release of the domestic jobs report on Friday, which reaffirmed expectations that the Bank of Canada (BoC) will pause its interest rate hike campaign. Furthermore, Crude Oil prices remain depressed for the second successive day below a nearly four-month top touched on Monday and turn out to be another factor undermining the commodity-linked Loonie. This, along with a modest pickup in the US Dollar (USD) demand, is seen acting as a tailwind for the USD/CAD pair.

Despite a slight disappointment from the headline NFP print, solid wage growth and an unexpected downtick in the jobless rate pointed to the continued tightness in the US labour market. This, in turn, raised the odds of a soft landing for the US economy and should allow the US central bank to stick to its hawkish stance. Adding to this, Fed Governor Michele Bowman on Monday kept the door for one more 25 bps lift-off in September or November. This remains supportive of elevated US Treasury bond yields, which lend support to the buck and the USD/CAD pair.

In remarks prepared for delivery to a "Fed Listens" event in Atlanta, Bowman said that additional interest rate hikes will likely be needed to lower inflation to the central bank's 2% target. Bowman added that inflation remains elevated, and job growth and other indications of activity show the economy has continued expanding at a "moderate pace." This, along with a softer risk tone, benefits the safe-haven Greenback and suggests that the path of least resistance for the USD/CAD pair is to the upside, though bulls need to wait for a move beyond the 100-day SMA.

Market participants now look to the release of Trade Balance data from the US and Canada for some impetus later during the early North American session. Apart from this, Fedspeak, the US bond yields and the broader risk sentiment will drive the USD demand. Traders will further take cues from Oil price dynamics to grab short-term opportunities around the USD/CAD pair. The focus, however, will remain glued to the latest US consumer inflation figures on Thursday, which will influence expectations about the Fed's future rate-hike path and provide a fresh directional impetus.

Technical levels to watch