USD/CAD remains depressed below 1.2800 mark, downside seems cushioned

• USD/CAD witnessed a corrective pullback on Monday amid a pickup in crude oil prices.
• Rising Fed rate hike bets continued underpinning the USD and helped limit the downside.
• The fundamental backdrop supports prospects for the emergence of some dip-buying.

The USD/CAD pair maintained its offered tone heading into the North American session and was last seen hovering near the daily low, just below the 1.2800 round-figure mark.

Crude oil prices kicked off the new week on a positive note amid easing fears about the Omicron variant of the coronavirus and underpinned the commodity-linked loonie. This, in turn, failed to assist the USD/CAD pair to capitalize on the previous day's intraday rally of over 100 pips to the highest level since September 20, instead prompted fresh selling on Monday.

The downside, however, remains cushioned, at least for the time being, amid sustained US dollar buying, bolstered by the prospects for a faster policy tightening by the Fed. The markets have been pricing in the possibility of liftoff by May 2022. This, along with a strong recovery in the US Treasury bond yields, continued acting as a tailwind for the greenback.

The fundamental backdrop favours the USD bulls and supports prospects for the emergence of some dip-buying around the USD/CAD pair. There isn't any major market-moving economic data due for release from the US or Canada. This makes it prudent to wait for a strong follow-through selling before confirming that the recent positive move has run out of steam.

Technical levels to watch