USD/CAD steadily climbs to daily high, up a little around 1.2775 amid modest USD strength

• USD/CAD attracts some dip-buying on Friday amid a modest pickup in the USD demand.
• The prospects for additional Fed rate hikes, elevated US bond yields benefit the greenback.
• The recent rally in oil prices could underpin the loonie and keep a lid on any further gains.

The USD/CAD pair rebounds a few pips from the daily low and climbs to a fresh intraday peak during the first half of the European session. The pair is seen trading around the 1.2770 region and looking to recover further from a two-month low touched the previous day.

The US dollar builds on the overnight bounce from the lowest level since June and gains some positive traction on the last day of the week, which, in turn, offers some support to the USD/CAD pair. The recent comments by several Fed officials indicate that the US central bank would continue to tighten its monetary policy further. The hawkish Fed expectations allow the US Treasury bond yields to hold steady near a multi-week high and provide a modest lift to the greenback. That said, a combination of factors might hold back bulls from placing aggressive bets and keep a lid on any meaningful upside for the USD/CAD pair.

Market participants remain divided over the size of the next rate hike by the Fed amid signs of easing inflationary pressure in the US.  The US CPI report showed that consumer prices were unchanged in July, while the US Producer Price Index unexpectedly fell in July for the first time in two years. The incoming data suggests that US inflation may have peaked, which, along with the risk-on impulse, might act as a headwind for the safe-haven greenback. Apart from this, this week's rally in crude oil prices could underpin the commodity-linked loonie and further contribute to capping gains for the USD/CAD pair, at least for now.

Even from a technical perspective, the post-US CPI fall and acceptance below the 100-day SMA pivotal support favours bearish traders. This makes it prudent to wait for strong follow-through buying before confirming that the USD/CAD pair has formed a bottom and positioning for any further appreciating move. Moving ahead, Friday's US economic docket features the release of the Preliminary Michigan US Consumer Sentiment Index.  Apart from this, the US bond yields and the broader risk sentiment would drive the USD demand. This, along with oil price dynamics, should produce short-term opportunities around the USD/CAD pair.

Technical levels to watch