USDCAD clings to gains above 1.3400, over one-week high amid bearish oil prices/stronger USD

• USDCAD climbs to a one-and-half-week high and is supported by a combination of factors.
• Bearish oil prices undermine the Loonie and act as a tailwind amid sustained USD buying.
• The fundamental and technical set-up supports prospects for a further appreciating move.

The USDCAD pair builds on last week's bounce from the 100-day SMA support and gains some follow-through traction on Monday. The momentum lifts spot prices to a one-and-half-week top, around the 1.3425 area, during the early European session and is sponsored by a combination of factors.

Crude oil prices languish near the lowest level since September 28 touched on Friday amid concerns that the worsening COVID-19 situation in China will dent fuel demand. This, in turn, is seen undermining the commodity-linked Loonie and acting as a tailwind for the USDCAD pair amid a further US Dollar recovery.

The market sentiment remains fragile amid worries about economic headwinds stemming from the imposition of fresh COVID-19 lockdowns in China. Apart from this, fears of a potential escalation in the Russia-Ukraine conflict temper investors' appetite for riskier assets and benefit the safe-haven greenback.

Furthermore, the better-than-expected US Retail Sales data released on Thursday cast doubt on the peak inflation narrative. Moreover, hawkish signals from several Fed officials suggest that the US central bank is still far from pausing its rate-hiking cycle and providing an additional boost to the buck.

The fundamental backdrop seems tilted in favour of the USD bulls and supports prospects for a further intraday appreciating move for the USDCAD pair. Even from a technical perspective, sustained strength and acceptance above the 1.3400 round-figure mark adds credence to the bullish outlook for the major.

Hence, a subsequent move towards reclaiming the 1.3500 psychological mark, en route to the 50-day SMA support breakpoint, currently around mid-1.3500s, looks like a distinct possibility. In the absence of any major market-moving economic data, the USD and oil price dynamics will influence the USDCAD pair.

Technical levels to watch