USD/CAD slips below 1.3600 mark amid rising oil prices, modest USD weakness

The USD/CAD pair adds to the previous day's heavy losses and remains under some selling pressure for the second successive day on Tuesday. Spot prices drop to over a one-week low during the early European session, with bears now looking to extend the downward trajectory further below the 1.3600 round-figure mark.

Crude oil prices remain supported by expectations for the biggest supply cut by OPEC+ since the 2020 COVID crisis and continue to underpin the commodity-linked loonie. This, along with the prevalent US dollar selling bias, acts as a headwind for the USD/CAD pair and supports prospects for an extension of the corrective pullback from the highest level since May 2020.

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. Apart from this, the risk-on impulse - as depicted by a strong follow-through rally in the US equity markets - further seems to weigh on the safe-haven buck, though hawkish Fed expectations could limit losses.

Investors seem convinced that the US central bank will stick to its aggressive rate hiking cycle to tame inflation and have been pricing in another supersized 75 bps increase in November. The bets were reaffirmed by recent hawkish remarks by several Fed officials. This, in turn, favours the USD bulls and could offer some support to the USD/USD pair, at least for now.

Furthermore, market participants remain concerned that a deeper global economic downturn will dent fuel demand. This might keep a lid on any strong gains for the black liquid and further contribute to limiting the downside for the USD/CAD pair. This makes it prudent to wait for strong follow-through selling before confirming that spot prices have formed a near-term top.

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 FOMC members, the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Traders will further take cues from oil price dynamics to grab short-term opportunities around the major.

Technical levels to watch