USD/CAD steadily climbs back above 1.3700 mark, focus remains on US PCE data

• USD/CAD gains traction for the second straight day, though lacks follow-through.
• Subdued crude oil prices undermine the loonie and act as a tailwind for the pair.
• Retreating US bond yields, a positive risk tone weighs on the USD and caps gains.

The USD/CAD pair attracts some dip-buying in the vicinity of the mid-1.3600s and sticks to modest intraday gains through the first half of the European session. The pair maintains its bid tone for the second successive day and is currently trading just above the 1.3700 mark, well within this week's broader trading band.

A combination of factors drags the US dollar to a one-week low, which, in turn, acts as a headwind for the USD/CAD pair. The spill-over effect of the UK central bank's move to calm the markets drags the benchmark 10-year US Treasury note away from a 12-year high touched on Wednesday. Apart from this, a goodish recovery in the global risk sentiment further weighs on the safe-haven greenback.

That said, subdued price action around crude oil prices undermines the commodity-linked loonie and continues to lend some support to the USD/CAD pair, at least for the time being. Worries that a deeper global economic downturn will dent fuel demand offset global supply concerns and fail to assist the black liquid to capitalize on this week's goodish recovery from the lowest level since January 2022.

Furthermore, firming expectations for a more aggressive policy tightening by the Fed should limit the fall in the US bond yields and favours the USD bulls. Investors seem convinced that the US central bank will hike interest rates at a faster pace to curb inflation. Hence, the focus remains on the release of the US Personal Consumption Expenditures (PCE) - the Fed's preferred inflation gauge.

Friday's US economic docket also features the release of the Chicago PMI and the revised Michigan Consumer Sentiment Index. The data, along with the US bond yields and the broader risk sentiment, will influence the USD and provide a fresh impetus to the USD/CAD pair. Traders will further take cues from oil price dynamics to grab short-term opportunities on the last day of the week.

Technical levels to watch