USD/CAD refreshes daily high, bulls await sustained move beyond 200-DMA near 1.2630

• USD/CAD attracted some dip-buying on Tuesday and was supported by a combination of factors.
• Retreating crude oil prices undermined the loonie and extended support amid stronger greenback.
• Rising bets for aggressive Fed rate hikes, elevated US bond yields continued benefitting the buck.

The USD/CAD pair recovered its modest intraday losses and shot to a fresh daily high, around the 1.2630 region heading into the North American session.

A combination of factors assisted the USD/CAD pair to attract some buying near the 1.2570-1.2565 area on Tuesday, with bulls still awaiting sustained strength beyond the very important 200-day SMA. Retreating crude oil prices undermined the commodity-linked loonie. This, along with the underlying bullish sentiment surrounding the US dollar, acted as a tailwind for spot prices.

Crude oil retreated further from the three-week high touched the previous day amid worries over slowing demand in the wake of COVID-19 lockdowns in major centres in China. That said, concerns about tight global supply and a potential European Union (EU) embargo on Russian gas over its invasion of Ukraine, should help limit the downside for the black liquid, at least for now.

On the other hand, the USD climbed to a fresh two-year high and continued drawing support from growing acceptance that the Fed will tighten its monetary policy at a faster pace to curb soaring inflation. In fact, the markets have been pricing in multiple 50 bps rate hikes by the Fed, which, in turn, pushed the US Treasury bond yields to a multi-year peak and underpinned the greenback.

Hence, the market focus will remain on a scheduled speech by Chicago Fed President Charles Evans, due later during the US session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD and provide some impetus. Traders will further take cues from oil price dynamics to grab some short-term trading opportunities around the USD/CAD pair.

Technical levels to watch