USD/CAD climbs further beyond 1.3700 amid bearish Oil prices, modest USD strength

• USD/CAD gains traction for the second successive day and is supported by a combination of factors.
• Bearish Crude Oil prices undermine the Loonie and act as a tailwind amid the ongoing USD recovery.
• Bets that the Fed is done raising rates might keep a lid on any further gains for the USD and the pair.

The USD/CAD pair attracts some buying for the second straight day on Tuesday and builds on the overnight goodish rebound from the 1.3630-1.3625 region, or a near three-week low. The momentum lifts spot prices back above the 1.3700 mark during the Asian session and is sponsored by a combination of factors.

Crude Oil prices languish near a two-month low touched last Friday in the wake of the uncertain economic outlook, which could dent fuel demand. This is seen undermining the commodity-linked Loonie, which, along with a further US Dollar (USD) recovery from its lowest level since September 20 set the previous day, turn out to be key factors acting as a tailwind for the USD/CAD pair.

The softer US jobs report released on Friday reaffirmed the view that the Federal Reserve (Fed) will maintain the status quo for the third straight meeting in December. That said, the overnight comments by Fed officials raise uncertainty over the US central bank's next policy move and prompt some follow-through USD short covering. Apart from this, a softer risk tone benefits the safe-haven buck.

Investors, however, seem convinced that the Fed is done raising rates. This is reinforced by a fresh leg down in the US Treasury bond yields, which might keep a lid on any further gains for the USD bulls and the USD/CAD pair. Traders might also prefer to wait for speeches by other influential FOMC members, including Fed Chair Jerome Powell, which could provide cues about the future rate-hike path.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the USD/CAD pair's recent corrective decline from the vicinity of the 1.3900 mark, or its highest level since October 2022, has run its course. Traders now look to the release of Trade Balance data from the US and Canada. This, along with the USD and Oil price dynamics, should provide some impetus to the pair.

Technical levels to watch