USD/CAD clings to gains near session tops, above 1.2300 mark

The intraday USD buying picked up pace during the early European session and pushed the USD/CAD pair back above the 1.2300 mark. The pair was last seen trading with gains of around 0.30%, with bulls still awaiting a sustained move beyond the 1.2320 supply zone.

The pair, so far, has struggled to register any meaningful recovery and has been oscillating in a range over the past four trading sessions. The divergence in monetary policies adopted by the BoC and the Fed was seen as a key factor that continued acting as a headwind for the USD/CAD pair.

It is worth mentioning that the BoC reduced its weekly asset purchases at the April policy meeting and brought forward the guidance for the first interest rate hike to the second half of 2022. Conversely, the Fed remains firm to maintain the current accommodative monetary policy.

That said, speculations that positive economic data may force the Fed to raise interest rates sooner rather than later allowed the US dollar to regain positive traction on Tuesday. Apart from this, a softer risk tone benefitted the safe-haven USD and provided a modest lift to the USD/CAD pair.

The supporting factor, to some extent, was offset by bullish crude oil prices, which underpinned the commodity-linked loonie and kept a lid on any strong gains for the USD/CAD pair. This makes it prudent to wait for some strong follow-through buying before positioning for any further recovery.

Market participants now look forward to the release of second-tier US macro data – Trade Balance and Factory Orders. Canadian economic docket features Building Permits and Trade Balance data. This, along with oil price dynamics, might produce some trading opportunities around the USD/CAD pair.

Technical levels to watch