• A combination of supporting factors pushed USD/CAD to a near one-week high on Monday.
• Hawkish Fed expectations acted as a tailwind for the USD and provided a goodish boost.
• Retreating crude oil prices undermined the loonie and remained supportive of the move.

The USD/CAD pair continued scaling higher heading into the North American session and climbed to a fresh four-day high, around the 1.2765 region in the last hour.

The pair attracted some dip-buying in the vicinity of the 1.2700 mark on Monday and built on last week's post-BoC bounce from the 1.2600 neighbourhood. The US dollar made a strong comeback on the first day of a new week and remained well supported by the prospects for a faster policy tightening by the Fed. Adding to this, retreating crude oil prices undermined the commodity-linked loonie and provided a modest lift to the USD/CAD pair.

Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation and have been pricing in the possibility of liftoff in May 2022. The bets were reinforced by Friday's data, which showed that the headline CPI accelerated to the highest level since 1982 in November. Adding to this, the core CPI – excluding food and energy prices – recorded the sharpest pickup since mid-1991.

On the other hand, the Canadian dollar was weighed down by a weaker trading sentiment around the oil markets. This was seen as another factor that acted as a tailwind for the USD/CAD pair and contributed to the intraday move up. That said, easing concerns that the Omicron variant would have a limited impact on the fuel demand should help limit losses for the black liquid. In fact, OPEC on Monday raised its world oil demand forecast for the first quarter of 2022.

Apart from this, the prevalent risk-on environment might hold back traders from placing aggressive bullish bets around the safe-haven greenback. Investors would also prefer to move on the sidelines heading into this week's key central bank event risk – the FOMC monetary policy decision on Wednesday. The combination of factors could keep a lid on any further gains for the USD/CAD pair amid absent relevant market-moving economic releases on Monday.

Technical levels to watch