USD/CAD keeps the red near 1.3180-75 region, downside seems limited

The USD/CAD pair refreshed daily lows, around the 1.3155 region during the early North American session, albeit quickly recovered few pips thereafter.

The pair failed to capitalize on the previous session's strong positive move of around 100 pips, instead met with some fresh supply on Tuesday and was being weighed down by a combination of factors. The US dollar remained depressed on the back of uncertain US political environment, while a goodish rebound in crude oil prices underpinned the commodity-linked currency – the loonie.

The market might have already started pricing in a strong victory for Democratic challenger Joe Biden at the upcoming US presidential election. However, the fact that the race is much tighter in battleground states fueled uncertainty about the actual election outcome. This, in turn, was seen as one of the key factors that weighed on the USD and kept bulls on the defensive.

The USD struggled to gain any meaningful traction following the release of stronger-than-expected US Durable Goods Orders data. However, growing market worries about the potential economic impact of renewed lockdown measures to curb the second wave of coronavirus infections might continue to lend some support to the greenback's status as the global reserve currency.

Adding to this, the lack of progress over the next round of the US fiscal stimulus further dampened the market mood. This was evident from some follow-through weakness in the US equity markets, which tends to benefit traditional safe-haven assets, including the USD.

Investors also seemed reluctant to place any aggressive directional bets, rather preferred to wait on the sidelines ahead of the latest monetary policy update by the Bank of Canada. This makes it prudent to wait for some strong follow-through selling before positioning for any further near-term depreciating move for the USD/CAD pair.

Technical levels to watch