USD/CAD moves away from over two-month low, climbs beyond mid-1.3500s amid bearish Oil prices

• USD/CAD scales higher for the second straight day amid bearish Crude Oil prices.
• The risk-off mood benefits the safe-haven USD and contributes to the downfall.
• The US macro data could provide some impetus ahead of the BoC on Wednesday.

The USD/CAD pair builds on the previous day's recovery move from the 1.3480 region, or its lowest level since September 29 and gains positive traction for the second successive day on Tuesday. The momentum lifts spot prices to a three-day top, beyond mid-1.3500s during the Asian session and is sponsored by bearish Crude Oil prices.

Investors remain, sceptic, that supply cuts by OPEC+ would have a significant impact on the back of a darkening global economic outlook, which is expected to dent fuel demand. This, in turn, drags the black liquid back closer to a multi-month low touched in November, which is seen undermining the commodity-linked Loonie and lending some support to the USD/CAD pair. Apart from this, expectations that the Bank of Canada (BoC) will start cutting interest rates in the second quarter of 2024 further seem to weigh on the Canadian Dollar (CAD).

The US Dollar (USD), on the other hand, draws some support from the global flight to safety, though dovish Federal Reserve (Fed) expectations keep a lid on any further gains. Market participants now seem convinced that interest rates in the US have peaked and that the Fed will start easing its monetary policy as soon as March 2024. This leads to a fresh leg down in the US Treasury bond yields, which holds back the USD bulls from placing aggressive bets and might keep a lid on any meaningful appreciating move for the USD/CAD pair.

The aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out in the near term and positioning for any further gains. Traders now look to the US economic docket, featuring the release of ISM Services PMI and JOLTS Job Openings data. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand. Apart from this, Oil price dynamics should provide some impetus to the USD/CAD pair ahead of the BoC decision on Wednesday.

Technical levels to watch