USD/CAD bounces off daily low, keeps the red below mid-1.3400s ahead of US data

• USD/CAD kicks off the new week on a weaker note, though shows resilience below 1.3400.
• Rallying oil prices underpins the Loonie and exerts some downward pressure on the major.
• A modest USD bounce from a multi-month low help limit losses, at least for the time being.

The USD/CAD pair comes under heavy selling pressure on Monday and drops to over a one-week low, though shows some resilience below the 1.3400 mark. Spot prices, however, remain in the negative territory and now seem to have stabilized around the 1.3420-1.3425 region heading into the North American session.

Crude oil prices rally nearly 2.5% on the first day of a new week in reaction to the OPEC+ decision to cut output by 2 million barrels per day from November through 2023. Adding to this, positive signs for fuel demand recovery in China, amid the easing of strict COVID-19 curbs, boost the black liquid. This, in turn, underpins the commodity-linked Loonie and exerts some downward pressure on the USD/CAD pair.

The downside, however, remains cushioned amid an intraday US Dollar recovery from its lowest level since late June touched earlier this Monday. Worries about a deeper global economic downturn continue to weigh on investors' sentiment, which is evident from a weaker tone around the equity markets. This, along with an uptick in the US Treasury bond yields, offers some support to the safe-haven buck.

The upbeat US monthly jobs report (NFP) released on Friday and an upside surprise in wages point to a further rise in inflationary pressures. The data reaffirmed expectations that the US central bank will continue to tighten its monetary policy and validates Fed Chair Jerome Powell's forecast that the peak interest rate will be higher than expected. This, in turn, is seen acting as a tailwind for the US bond yields.

That said, the recent comments by several FOMC Officials support prospects for relatively smaller interest rate hikes by the US central bank. This, in turn, is holding back the USD bulls from placing aggressive bets and should keep a lid on any meaningful recovery for the USD/CAD pair. Next on tap is the release of the US ISM Services PMI, which might influence the USD and provide some trading impetus.

Technical levels to watch