USD/CAD recovers early lost ground, flat-lined just below mid-1.2700s

• USD/CAD attracted some dip-buying on Tuesday and was supported by a combination of factors.
• Weaker crude oil prices undermined the loonie and acted as a tailwind amid sustained USD buying.
• Retreating US bond yields held back bulls from placing aggressive bets and capped gains for the pair.

The USD/CAD pair recovered over 50 pips from the daily low and touched a fresh intraday high, around the 1.2745 region during the first half of the European session.

A combination of factors assisted the USD/CAD pair to attract some dip-buying near the 1.2685 region on Tuesday and turned positive for the fourth successive day. Crude oil prices languished near a two-week low amid worries that renewed COVID-19 curbs in China will hamper fuel demand. This, in turn, weighed on the commodity-linked loonie and acted as a tailwind for spot prices amid the underlying strong bullish sentiment surrounding the US dollar.

The market conviction that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation, along with the prevalent risk-off mood, lifted the USD to a more than two-year high. Investors now expect the US central bank to hike interest rates by 50 bps at each of the next four FOMC meetings in May, June, July and September. Apart from this, concerns about slowing global economic growth tempered investors' appetite for perceived riskier assets.

That said, the ongoing retracement slide held back the USD bulls from placing aggressive bets and kept a lid on any further gains for the USD/CAD pair, at least for the time being. This makes it prudent to wait for some follow-through buying before positioning for any further near-term appreciating move. Traders now look forward to the US economic docket, featuring the release of Durable Goods Orders and the Conference Board's Consumer Confidence Index.

Apart from this, the US bond yields, along with the broader market risk sentiment, will influence the USD and provide some impetus to the USD/CAD pair. Traders will further take cues from oil price dynamics to grab some short-term opportunities.

Technical levels to watch