USD/CAD flits with 50-DMA, around mid-1.2800s amid softer USD/rebounding oil prices

• A combination of factors prompted aggressive intraday selling around USD/CAD on Monday.
• Rebounding crude oil prices underpinned the loonie and exerted pressure amid a weaker USD.
• Recession fears could cap oil prices and limit the USD losses ahead of the key FOMC decision.

The USD/CAD pair witnessed an intraday turnaround from a multi-day high touched earlier this Monday and has now retreated nearly 100 pips from the vicinity of mid-1.2900s. The pair maintained its offered tone heading into the North American session and was last seen flirting with the 50-day SMA, around the 1.2855-1.2850 region.

A goodish recovery in the global risk sentiment - as depicted by a strong intraday rally in the equity markets - weighed on the safe-haven US dollar. In fact, the USD Index languished near its lowest level since July 5 touched on Friday, which, in turn, was seen as another factor that acted as a headwind for the USD/CAD pair on Monday.

A weaker USD, along with a positive tone, assisted crude oil prices to rebound over 4% from a one-week low touched earlier this Monday. This, in turn, underpinned the commodity-linked loonie and exerted additional downward pressure on the USD/CAD pair. That said, a combination of factors could help limit losses for spot prices.

Investors remain worried that a more aggressive tightening by major central banks could limit economic activity and pose challenges to global growth. This, along with the imposition of strict COVID-19 controls in China, has raised concerns about the fuel demand outlook and should cap gains for the black liquid.

Traders might also refrain from placing aggressive directional bets and prefer to wait on the sidelines ahead of the crucial FOMC monetary policy decision, scheduled to be announced on Wednesday. The Fed is widely expected to hike interest rates by 75 bps and hence, the focus would be on fresh clues about the future policy tightening path.

Market participants this week will also keep a close eye on important US macro data. A rather busy week kicks off with the release of the Conference Board's US Consumer Confidence Index on Tuesday. This, along with the Advance US Q2 GDP report on Thursday, will influence the USD and help determine the near-term trajectory for the USD/JPY pair.

Technical levels to watch