USD/CAD struggles near daily low, around 1.3400 mark amid modest USD weakness

• USD/CAD meets with a fresh supply on Tuesday amid the emergence of some USD selling.
• China’s COVID-19 woes, hawkish Fed expectations should limit the downside for the buck.
• Subdued crude oil prices might cap gains for the Loonie and lend some support to the pair.

The USD/CAD pair comes under some selling pressure on Tuesday and extends the overnight pullback from the vicinity of the 1.3500 psychological mark. The pair remains on the defensive through the first half of the European session and is currently flirting with the daily low, just below the 1.3400 round-figure mark.

The US Dollar stalls its recent strong recovery move from the lowest level since August 12 and retreats from over a one-week high touched on Monday, which, in turn, acts as a headwind for the USD/CAD pair. A modest downtick in the US Treasury bond yields is weighing on the greenback. That said, the prevalent cautious mood should help limit any deeper losses for the safe-haven buck and offer some support to the major.

Investors remain worried about the potential economic fallout from a new COVID-19 outbreak in China and the imposition of fresh lockdowns in several cities. Moreover, fears of a further escalation in the Russia-Ukraine conflict take its toll on the risk sentiment. Adding to this, hawkish signals by Fed officials, suggesting that the US central bank is far from pausing its rate-hiking cycle, favour the USD bulls.

Meanwhile, concerns over slowing demand in China - the world's largest crude importer - should keep a lid on the black liquid. This, in turn, might undermine the commodity-linked Loonie and further help limit the downside for the USD/CAD pair. Traders now look forward to the economic docket, featuring Canadian monthly Retail Sales figures and the Richmond Manufacturing Index from the US, for a fresh trading impetus.

Apart from this, a scheduled speech by Cleveland Fed President Loretta Mester will drive the USD demand. This, along with oil price dynamics, will further contribute to producing some meaningful trading opportunities around the USD/CAD pair. Nevertheless, the fundamental backdrop supports prospects for the emergence of some buying at lower levels, warranting caution before positioning for any further decline.

Technical levels to watch