USD/CAD clings to modest intraday gains, holds above mid-1.2900s amid renewed USD buying

The USD/CAD pair catches fresh bids on Wednesday and reverses a part of the previous day's sharp retracement slide from a six-week high. The pair maintains its bid tone through the early European session and is currently placed near the top end of its daily range, around the 1.2975-1.2980 region.

A combination of factors assists the US dollar to regain positive traction and turns out to be a key factor acting as a tailwind for the USD/CAD pair. The overnight knee-jerk reaction to the dismal US PMI prints turns out to be short-lived amid firming expectations for a further policy tightening by the Fed. In fact, the markets are still pricing in at least a 50 bps Fed rate hike at the September policy meeting. This remains supportive of elevated US Treasury bond yields, which, along with the prevalent risk-off environment, continue to benefit the safe-haven buck.

The market sentiment remains fragile amid growing worries about a global economic downturn and headwinds stemming from China’s COVID-zero policy. Apart from this, fading hopes for an imminent output cut by the major producers capped crude oil prices near the very important 200-day SMA. This, in turn, is undermining the commodity-linked loonie and offering additional support to the USD/CAD pair, supporting prospects for further gains. That said, bulls prefer to wait for a hawkish message from Fed Chair Jerome Powell at the Jackson Hole symposium on Friday.

In the meantime, traders on Wednesday will take cues from the US economic docket - featuring Durable Goods Orders and Pending Home Sales data later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, might drive the USD demand and provide some impetus to the USD/CAD pair. Apart from this, oil price dynamics will be looked upon to grab short-term trading opportunities.

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