USD/CAD climbs further beyond 1.3700 mark amid sliding oil prices, stronger USD

• A combination of factors assists USD/CAD to rebound swiftly from the 1.3600 neighbourhood.
• Weaker crude oil prices undermine the loonie and offer support amid resurgent USD demand.
• Retreating US bond yields might cap gains for the USD and warrants caution for bullish traders.

The USD/CAD pair finds decent support near the 1.3600 mark and stages a solid recovery from over a two-week low touched earlier this Monday. The strong intraday positive move lifts spot prices back above the 1.3700 mark during the early European session and is sponsored by a combination of factors.

Uncertainty over the economic headwinds stemming from China's zero-COVID policy and growing recession fears dampens the outlook for fuel demand. This, in turn, prompts fresh selling around WTI crude oil prices, which undermines the commodity-linked loonie. Furthermore, resurgent US dollar demand offers support to the USD/CAD pair and remains supportive of the intraday recovery move.

Spot prices reverse a part of Friday's steep decline, though a further pullback in the US Treasury bond yields could act as a headwind for the buck and cap any further gains for the USD/CAD pair. In fact, the yield on the benchmark 10-year US government bond retreats further from a 15-year high in the wake of a report that some Fed officials are signalling greater unease with oversized rate hikes.

The Wall Street Journal article indicated that the Fed might debate on whether and how to signal plans to approve a smaller increase in December. The report also highlighted that policymakers want to stop raising rates early next year to see how their moves are slowing the economy and to reduce the risk of causing an unnecessarily sharp slowdown. This, in turn, is dragging the US bond yields lower.

The mixed fundamental backdrop warrants caution before placing fresh bullish bets around the USD/CAD pair and positioning for any further intraday appreciating move. Traders now look to the flash US PMI prints, which, along with the US bond yields, will drive the USD demand. Apart from this, oil price dynamics might contribute to producing short-term opportunities around the USD/CAD pair.

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