USD/CAD struggles near one-week lows, around mid-1.3100s

The USD/CAD pair dived to one-week lows, around the 1.3140-35 region during the mid-European session, albeit recovered few pips thereafter.

The pair added to the previous day's heavy losses and witnessed some follow-through selling for the second consecutive session on Tuesday. The downfall was sponsored the some aggressive US dollar long-unwinding trade and a strong intraday pickup in crude oil prices, which tend to underpin demand for the commodity-linked currency – the loonie.

Heading into the election day in the US, the markets now seem to have started pricing in a victory for Democratic nominee Joe Biden, who is expected to spend big on stimulus. This, in turn, prompted the USD bulls to lighten their bets and was seen as one of the key factors that continued exerting some heavy pressure on the USD/CAD pair.

Adding to this, the prevalent upbeat market mood – despite growing worries about the economic fallout from fresh coronavirus-induced lockdowns – further dented the greenback's relative safe-haven status. The risk-on flow was evident from a bullish trading sentiment around the equity markets and reinforced by a pickup in the US Treasury bond yields.

Meanwhile, crude oil prices rallied over 3% on Tuesday and recovered further from multi-month lows touched in the previous session on reports that Russian oil firms may agree to an extension of OPEC+ production cuts. This was also cited as another factor that benefitted the loonie and contributed to the USD/CAD pair's intraday downfall.

Tuesday's decline could further be attributed some technical selling on a sustained break below the 1.3200 round-figure mark. However, slightly oversold conditions on hourly charts helped limit further losses ahead of the key event risk. That said, the USD/CAD pair still seems vulnerable to slide further and aim back to challenge the 1.3100 mark.

Technical levels to watch