USD/CAD extends intraday pullback from YTD peak, slides further below 1.3000 mark

• USD/CAD witnessed an intraday pullback from the fresh YTD high touched earlier this Tuesday.
• The risk-on impulse, retreating US bond yields prompted some profit-taking around the major.
• Sliding oil prices could undermine the loonie and limit losses amid aggressive Fed rate hike bets.

The USD/CAD pair edged lower through the early North American session and dropped to a fresh daily low, around the 1.2980-1.2975 region in the last hour.

Spot prices struggled to capitalize on the modest intraday gains and started retreating from the 1.3035 region, or the highest level since November 2020 touched earlier this Tuesday. The downtick lacked any obvious fundamental catalyst and could be solely attributed to some profit-taking following the recent strong gains of over 300 pips recorded over the past three days or so.

The corrective slide, however, remains cushioned amid a weaker tone around crude oil prices, which tend to undermine the commodity-linked loonie. Oil prices added to the previous day's steep declines amid the bleak outlook for global fuel demand - led by growing recession risks and strict coronavirus-induced lockdowns in top oil importer - China.

Furthermore, a delay in the approval of the European Union's proposed phased embargo on Russian oil - amid requests from Eastern European members for exemptions and concessions - also undermined the commodity. Reports indicate that a new version is currently being drafted and could drop a ban on EU tankers carrying Russian oil after pressure from Greece, Cyprus and Malta.

On the other hand, retreating US Treasury bond yields and the risk-on impulse in the markets held traders from placing fresh bullish bets around the safe-haven US dollar. That said, the prospects for a faster policy tightening by the Fed should continue to act as a tailwind for the buck, warranting some caution before positioning for any deeper losses.

In fact, the markets seem convinced that the Fed would need to take more drastic action to combat stubbornly high inflation and have been pricing in a further 200 bps rate hike for the rest of 2022. Hence, the focus remains glued to the release of the latest US consumer inflation figures on Wednesday, which will play a key role in driving the USD demand.

In the meantime, the USD remains at the mercy of the US bond yields and the broader market risk sentiment amid absent relevant market moving economic releases. Apart from this, oil price dynamics should provide some impetus to the USD/CAD pair and allow traders to grab some short-term opportunities.

Technical levels to watch