USD/CAD retakes 1.3400 amid modest USD strength, upside potential seems limited

• USD/CAD regains positive traction on Thursday amid the emergence of some USD buying.
• Bets for an imminent pause in the Fed’s rate-hiking cycle could cap the upside for the buck.
• An uptick in Oil prices might further contribute to keeping a lid on further gains for the pair.

The USD/CAD pair builds on the overnight modest bounce from the 1.3335 area and gains some follow-through traction through the first half of trading on Thursday. The pair maintains its bid tone heading into the European session and climbs to a fresh daily high, just above the 1.3400 round-figure mark in the last hour.

The US Dollar (USD) is back in demand and climbs back closer to the top end of its recent trading range witnessed over the past week or so, which, in turn, is seen as a key factor lending some support to the USD/CAD pair. In the absence of a fresh fundamental trigger, the intraday USD uptick runs the risk of fizzling out rather quickly amid growing acceptance that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycles.

The market expectations were reaffirmed by the release of the latest US CPI report on Wednesday, which further pointed to signs of an easing of inflationary pressures. This, along with concerns about the US debt ceiling, drags the US Treasury bond yields lower and might hold back the USD bulls from placing aggressive bets. Apart from this, a modest uptick in Oil prices could underpin the commodity-linked Loonie and cap the upside for the USD/CAD pair.

Even from a technical perspective, spot prices have been oscillating in a familiar one-week-old trading range, which points to indecision among traders over the near-term trajectory. This further makes it prudent to wait for strong follow-through buying before confirming that the USD/CAD pair has formed a near-term bottom and positioning for an extension of the recent recovery from the 1.3300 round-figure mark, or a two-month low touched on April 14.

Market participants now look to the US economic docket, featuring the release of the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims later during the early North American session. Apart from this, Fed Governor Christopher Waller's scheduled speech and the US bond yields will drive the USD demand. This, along with Oil price dynamics, should provide some impetus to the USD/CAD pair and allow traders to grab short-term opportunities.

Technical levels to watch