USD/CAD stages a modest recovery from multi-week low, upside potential seems limited

• USD/CAD gains some positive traction amid a goodish pickup in the USD demand.
• The Fed’s less hawkish stance and the risk-on mood act as a headwind for the USD.
• Bullish Oil prices could underpin the Loonie and contribute to capping the major.

The USD/CAD pair attracts some buying near the 1.3585 region, or over a three-week low touched this Wednesday and sticks to its modest gains through the early European session. The pair is currently placed just above the 1.3600 round-figure mark and for now, seems to have snapped a two-day losing streak, though lacks bullish conviction.

The US Dollar regains positive traction and recovers a major part of the overnight losses, which, in turn, is seen as a key factor lending some support to the USD/CAD pair. That said, the Federal Reserve's less hawkish stance, along with the prevalent risk-on environment, might hold back traders from placing aggressive bullish bets around the safe-haven USD and act as a headwind for the major, at least for the time being.

It is worth recalling that the US central bank last week toned down its approach to reining in inflation and signalled that a pause to interest rate hikes was on the horizon in the wake of the recent turmoil in the banking sector. Adding to this, the takeover of Silicon Valley Bank by First Citizens Bank & Trust Company calmed market nerves about the contagion risk and helped reverse the negative sentiment in the markets.

Apart from this, bullish Crude Oil prices could underpin the commodity-linked Loonie and contribute to capping any further gains for the USD/CAD pair. Against the backdrop of hopes of a strong demand recovery in China, a halt to some exports from Iraq's Kurdistan raised concerns about tightening global supplies. This, along with easing fears of a full-blown banking crisis, pushes the black liquid to over a two-week high.

This, in turn, makes it prudent to wait for strong follow-through buying before confirming that the USD/CAD pair's rejection slide from levels just above the 1.3800 mark has run its course and placing fresh bullish bets. Traders now look to the US economic docket, featuring the release of Pending Home Sales. The data might influence the USD, which, along with Oil price dynamics could provide some impetus to the major.

The focus, however, will remain on the final US Q4 GDP on Thursday, followed by the monthly Canadian GDP report and the Core PCE Price Index - the Fed's preferred inflation gauge - on Friday.

Technical levels to watch