USD/CAD climbs back above mid-1.2300s amid a modest USD rebound

• USD/CAD attracted dip-buying near the 1.2300 mark and turned positive for the second straight day.
• A sudden pickup in the USD demand was seen as a key factor that provided a goodish lift to the pair.
• Bullish oil might underpin the loonie and cap gains amid reduced odds for an earlier Fed tightening.

The USD/CAD pair rallied over 60 pips from the early European session lows and shot to fresh daily tops, around the 1.2365 region in the last hour.

The pair managed to defend the 1.2300 round-figure mark and staged a goodish intraday rebound from over one-week lows touched earlier this Tuesday. The USD/CAD pair has now moved into the positive territory for the second consecutive session and was supported by a sudden pickup in the US dollar demand.

The USD found some support from the emergence of some heavy selling around the shared currency in reaction to the disappointing release of ZEW survey results. Apart from this, concerns about the spread of the highly contagious Delta variant of the coronavirus further underpinned the safe-haven greenback.

That said, diminishing odds for an earlier than anticipated policy tightening by the Fed, along with a fresh leg down in the US Treasury bond yields might hold the USD bulls from placing aggressive bets. This, along with bullish oil prices, might underpin the commodity-linked loonie and cap gains for the USD/CAD pair.

Oil prices shot to the highest level since November 2014 on the back of expectations that the crude market will tighten further after OPEC+ failed to agree on a deal to increase production. After several days of tense talks, OPEC and its allies abandoned their meeting on Monday in light of the objections from the UAE.

Nevertheless, the pair has now moved back closer to the overnight swing highs, which is followed by 100-day SMA, around the 1.2380 region. A sustained move beyond, leading to a subsequent strength above the 1.2400 mark will be seen as a fresh trigger for bullish traders and pave the way for additional gains.

Market participants now look forward to the US economic docket, highlight the release of ISM Services PMI. The data might influence the USD, which along with oil price dynamics might produce some trading opportunities around the USD/CAD pair. The key focus, however, will remain on Wednesday's release of the FOMC meeting minutes.

Technical levels to watch