USD/CAD recovers early lost ground to sub-1.3600 levels, lacks follow-through

The USD/CAD pair reverses an intraday dip to sub-1.3600 levels, or over a one-week low and inches back closer to the daily high during the mid-European session. The uptick, however, lacks follow-through and the pair remains below the mid-1.3600s amid the heavily offered tone surrounding the US dollar.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, hits a one-and-half-week low amid the ongoing downfall in the US Treasury bond yields. The Bank of England's reaffirmation to buy up to £5 billion of long-dated gilts drags the US Treasury bond yields away from a multi-year top touched last week.

This, along with the risk-on impulse, forces the safe-haven USD to prolong its recent pullback from a two-decade high. Apart from this, bullish crude oil prices, bolstered by expectations for the biggest supply cut by OPEC+ since the 2020 COVID crisis, underpin the commodity-linked loonie and act as a headwind for the USD/CAD pair.

That said, growing acceptance that the Federal Reserve will stick to its aggressive rate hiking cycle could help limit the downside for the greenback. Furthermore, concerns that a deeper global economic downturn will dent fuel demand should cap the black liquid and supports prospects for the emergence of some buying around the USD/CAD pair.

Market participants now look forward to the US economic docket, featuring the release of JOLTS Job Openings and Factory Orders data later during the early North American session. This, along with speeches by influential FOMC members, the US bond yields and the broader risk sentiment, will drive the USD and provide some impetus to the USD/CAD pair.

Technical levels to watch