USD/CAD retreats to mid-1.3700s amid modest USD pullback, downside seems cushioned

• USD/CAD retreats from daily peak amid the emergence of fresh selling around the USD.
• Sliding US bond yields and the risk-on impulse is seen weighing on the safe-haven buck.
• Falling crude oil prices undermine the loonie and help limit the downside for the major.

The USD/CAD pair quickly retreats around 75-80 pips during the early North American session and is currently placed in neutral territory, around mid-1.3700s.

The US dollar surrenders its strong intraday gains and slides back closer to the weekly low touched earlier this Friday, which, in turn, prompts fresh selling around the USD/CAD pair. A fresh wave of the risk-on trade, along with retreating US Treasury bond yields, turn out to be key factors exerting some downward pressure on the safe-haven greenback. That said, the prospects for a more aggressive policy tightening by the Fed should act as a tailwind for the US bond yields and the buck.

In fact, the fed fund futures indicate a greater chance of the fourth successive 75 bps supersized rate hike by the US central bank at the next policy meeting in November. The bets were reaffirmed by the stronger US consumer inflation figures released on Thursday. Apart from this, a sharp intraday fall in crude oil prices is seen undermining the commodity-linked loonie and offering support to the USD/CAD pair. This, in turn, warrants some caution for aggressive bearish traders.

The markets, meanwhile, reacted little to mixed US Retail Sales figures for September, suggesting that the path of least resistance for the USD is to the upside. Hence, any subsequent pullback could be seen as an opportunity to initiate fresh bullish positions around the USD/CAD pair. That said, a convincing break below the 1.3700 mark will negate the near-term positive bias and set the stage for an extension of the previous day's dramatic turnaround from the highest level since May 2020.

Technical levels to watch