USD/CAD clings to intraday gains above 1.3200 mark, upside potential seems limited

• USD/CAD attracts fresh buying on Tuesday and draws support from a modest USD strength.
• The recent bullish run in Oil prices could underpin the Loonie and cap the upside for the pair.
• Traders look to the US ISM Manufacturing PMI and JOLTS Job Openings for some impetus.

The USD/CAD pair regains some positive traction during the Asian session on Tuesday and reverses a major part of the previous day's decline to the 1.3150 horizontal support. Spot prices currently trade around the 1.3220 region, up 0.25% for the day, and remain well within the striking distance of a three-week high touched on Monday.

The US Dollar (USD) scales higher for the second successive day and climbs to its highest level since July 10 amid the prospects for further policy tightening by the Federal Reserve (Fed), which, in turn, is seen acting as a tailwind for the USD/CAD pair. It is worth recalling that Fed Chair Jerome Powell had said last week that the economy still needs to slow and the labour market to weaken for inflation to credibly return to the 2% target. Adding to this, the upbeat US GDP report pointed to a resilient economy and left door for one more 25 bps Fed rate hike in September or November wide open. This remains supportive of elevated US Treasury bond yields, which, along with concerns that China's post-COVID recovery is stalling, further benefits the Greenback's relative safe-haven status.

That said, signs of receding underlying price pressures in the US could allow the Fed to soften its hawkish stance and end its fastest rate-hiking cycle since the 1980s. This, along with hopes for more stimulus from China, continues to boost investors' confidence, which is evident from the underlying bullish sentiment across the global equity markets and cap gains for the USD. Apart from this, the recent strong runup in Crude Oil prices, to the hightest level since April 17, could underpin the commodity-linked Loonie and contribute to keeping a lid on any meaningful upside for the USD/CAD pair, at least for the time being. This makes it prudent to wait for strong follow-through buying before placing fresh bullish bets around the major and positioning for any further intraday appreciating move.

Market participants now look to the US economic docket, featuring the ISM Manufacturing PMI and JOLTS Job Openings. This, along with the broader risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Traders will further take cues from Oil price dynamics to grab short-term opportunities. The focus, however, will remain glued to the closely-watched monthly employment details from the US (popularly known as the NFP report) and Canada on Friday. This should help determine the next leg of a directional move for the major.

Technical levels to watch