USDCAD holds on to modest gains around 1.3300

• USDCAD bounces off the 100 DMA support and is supported by a combination of factors.
• Falling oil prices weaken the Loonie and act as a tailwind amid a strong USD rebound.
• Bets on less aggressive Fed rate hikes could limit dollar and pair gains.

The pair USDCAD staged a modest recovery from 100-day SMA support around 1.3240-1.3235 area, recovering a significant portion of Friday’s losses to a 2-month low. The pair is holding on to its intraday gains during the early American session and is hovering around the 1.3300 level.

Crude oil prices fell nearly 1.5% on the first day of a new week after OPEC lowered its 2022 global oil demand growth forecast for the fifth time since April. This, in turn, undermines the commodity-linked Loonie, which, coupled with resurgent demand for US dollars, acts as a tailwind for the USDCAD pair.

US Treasury bond yields regain positive traction in reaction to more rosy comments from Federal Reserve Governor Christopher Waller on Sunday. During a conversation in Sydney, Australia, Waller noted that markets have overreacted to lower consumer price inflation in October last week.

Waller added that the US central bank was not easing its fight against inflation, and it will take a series of soft CPI reports for the Fed to take its foot off the brake. Aside from this, a softer risk tone provides additional lift to the safe-haven dollar and continues to push USDCAD higher.

That said, the latest optimism about an eventual easing of COVID-19 measures in China could help limit oil price losses. Aside from this, growing bets on less aggressive rate hikes by the Fed appear to limit dollar and USDCAD gains, at least for now.

In the absence of significant macroeconomic data, the fundamental background warrants some caution before positioning for an extension of the intraday move to the upside. This, in turn, makes it prudent to wait for strong follow-on buying before confirming that the USDCAD has bottomed.

Technical levels to watch