USD/CAD climbs beyond mid-1.3600s, highest since April amid weaker Oil prices/bullish USD

• USD/CAD rallies to over a four-month top and draws support from a combination of factors.
• Retreating Crude Oil prices undermines the Loonie and acts as a tailwind amid a bullish USD.
• Technical buying above the 1.3600 mark also contributes to the strong positive momentum.

The USD/CAD pair catches aggressive bids following the previous day's subdued/range-bound price action and jumps to its highest level since April 28 during the early European session on Tuesday. Spot prices currently trade just above mid-1.3600s, up over 0.50% for the day, and seem poised to prolong the recent upward trajectory witnessed over the past month or so.

Crude Oil prices retreat from the YTD peak and undermine the commodity-linked Loonie, which, along with the emergence of fresh US Dollar (USD) buying, provides a goodish lift to the USD/CAD pair. Weaker Chinese data revived concerns that the worsening conditions in the world's second-largest economy will dent fuel demand. This overshadows expectations that OPEC+ will extend output cuts to the end of the year and weighs on the black liquid.

Meanwhile, China's slow approach to rolling out more stimulus measures tempers investors' appetite for riskier assets, which is evident from the prevalent cautious mood around the equity markets. Apart from this, expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, reinforced by a fresh leg up in the US Treasury bond yields, acts as a tailwind for the safe-haven buck and contributes to the USD/CAD pair's strong move up.

Despite signs that labour market conditions in the US were easing, the markets are still pricing in the possibility of one more 25 bps Fed rate hike move by the end of this year. The bets were lifted following the hotter-than-expected release of inflation data from South Korea, Thailand and the Philippines. This, in turn, pushes the USD Index (DXY), which tracks the Greenback against a basket of currencies, to over a three-month high and favours the USD/CAD bulls.

Even from a technical perspective, acceptance above the 1.3600 mark and a subsequent strength beyond the 1.3635-1.3640 hurdle validate the near-term positive outlook. That said, the Relative Strength Index (RSI) is flashing overbought conditions on hourly charts and warrants some caution before placing fresh bullish bets. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside.

Technical levels to watch