USD/CAD surrenders modest intraday gains, flat-lined around 1.2925 region

• USD/CAD struggled to preserve its intraday gains amid modest USD weakness.
• Sliding US bond yields turned out to be a key factor that weighed on the buck.
• Softer crude oil prices undermined the loonie and offered support to the pair.

The USD/CAD pair witnessed good two-way price moves heading into the North American session and was last seen trading in neutral territory, around the 1.2925-1.2930 region.

A weaker tone surrounding the US Treasury bond yields prompted some US dollar selling on the first day of a new week, which, in turn, failed to assist the USD/CAD pair to capitalize on its intraday gains. Spot prices retreated over 50 pips from the daily swing high, around the 1.2980 region. That said, retreating crude oil prices undermined the commodity-linked loonie and acted as a tailwind for the major.

Weak Chinese macro data released this Monday underscored the damage caused by COVID-19 lockdowns in the world's second-largest economy. This added to worries about faltering global fuel demand and weighed on crude oil prices. That said, the European Union’s impending ban on Russian crude imports, along with concerns about tightening global supply, acted as a tailwind for the commodity and help limit deeper losses.

Investors also seem worried that a more aggressive move by major central banks to constrain inflation could hit global economic growth amid the war in Ukraine and China's zero-COVID-19 policy. This tempered investors' appetite for perceived riskier assets. The anti-risk flow dragged the yield on the benchmark 10-year US government bond away from the recent peak of 3.20% and exerted some pressure on the buck.

That said, firming expectations that the Fed would tighten its monetary policy at a faster pace should lend some support to the greenback and the USD/CAD pair. In fact, markets are pricing in at least a 50 bps Fed rate hike move at the next two policy meetings. Hence, investors will now scrutinize remarks by several FOMC officials, including Fed Chair Jerome Powell, for clues about the possibility of a 75 bps rate hike move.

Apart from this, traders will take cues from the release of the US Retail Sales figures on Tuesday and the Canadian CPI report on Wednesday before placing fresh directional bets around the USD/CAD pair. In the meantime, the Empire State Manufacturing Index might provide some impetus during the early North American session on Monday. This, along with oil price dynamics, would be looked upon to grab short-term trading opportunities.

Technical levels to watch