USD/CAD sticks to gains above mid-1.3500s amid softer oil prices, modest USD uptick

• USD/CAD regains some positive traction on Thursday, albeit lacks follow-through buying.
• Retreating oil prices undermines the Loonie and lends support amid a modest USD uptick.
• Depressed US bond yields act as a headwind for the USD and cap the upside for the pair.
• Traders now look to US macro data for some impetus amid a flurry of central bank events.

The USD/CAD pair attracts some dip-buying on Thursday and sticks to a mildly positive tone through the early European session. The pair is currently placed around the 1.3565-1.3570 region, up nearly 0.15% for the day, and is supported by a combination of factors.

Crude oil prices edge lower and stall this week's goodish recovery move from the vicinity of the YTD low, which, in turn, undermines the commodity-linked Loonie. Apart from this, a modest US Dollar bounce from its lowest level since mid-June, bolstered by a hawkish assessment of the Fed's policy decision on Wednesday, acts as a tailwind for the USD/CAD pair. The uptick, meanwhile, lacks follow-through buying, warranting caution before positioning for any meaningful appreciating move.

The US central bank on Wednesday signalled that it will continue to raise rates. Moreover, policymakers see the terminal rate rising to 5.1%, an additional 75 bps increases in borrowing costs by the end of 2023. Investors, however, seem convinced that the Fed will soon pivot from an ultra-hawkish stance to something more neutral. This, in turn, keeps the US Treasury bond yields depressed. Apart from this, a positive risk tone might hold back the USD bulls from placing aggressive bets.

Furthermore, an improvement in the outlook for fuel demand should limit the downside for crude oil prices. In fact, the International Energy Agency (IEA) forecast a rebound in oil demand over the next year amid the latest optimism over the easing of strict COVID-19 restrictions in China and signs of easing global inflationary pressures. This, in turn, should continue to lend some support to the Canadian Dollar and contribute to capping gains for the USD/CAD pair, at least for the time being.

Investors now look to the US economic docket - featuring Retail Sales, the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims data and Industrial Production data. This, along with the US bond yields and the broader market risk sentiment, will drive demand for the safe-haven USD and provide some impetus to the USD/CAD pair. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the major.

Technical levels to watch