• USD/CAD attracted aggressive dip-buying on Tuesday and rallied to a fresh multi-week high.
• Aggressive Fed rate hikes continued boosting the USD and remained supportive of the move.
• An intraday bounce in crude oil prices failed to underpin the loonie or hinder the momentum.

The USD/CAD pair rallied over 100 pips from the daily swing low and shot to the 1.2800 neighbourhood, or a fresh six-week high during the early North American session.

Rising bets for a more aggressive policy tightening by the Fed, along with the prevalent risk-off mood, pushed the safe-haven US dollar to its highest level since March 2020. This, in turn, was seen as a key factor that acted as a tailwind for the USD/CAD pair. Bulls seemed rather unaffected by an intraday pickup in crude oil prices, which tend to underpin the commodity-linked loonie.

From a technical perspective, last week's sustained breakthrough the 50% Fibonacci retracement level of the 1.2901-1.2403 downfall was seen as a fresh trigger for bullish traders. The emergence of aggressive dip-buying on Tuesday and acceptance above the 61.8% Fibo. level adds credence to the constructive outlook. This, in turn, supports prospects for a further appreciating move.

Hence, some follow-through strength towards the next relevant hurdle, around the 1.2825-1.2830 region, remains a distinct possibility. The positive momentum could further get extended and allow the USD/CAD pair to aim back to conquer the 1.2900 round-figure mark, or the YTD peak touched in March.

On the flip side, the 1.2740 region now seems to protect the immediate downside ahead of the 1.2700 mark, or the 61.8% Fibo. level. Any further decline might continue to tempt bullish traders near the 1.2685-1.2675 region. This, in turn, should help limit the downside near the 50% Fibo. level, around mid-1.2600s, which should now act as strong base for the USD/CAD pair.

USD/CAD daily chart

Key levels to watch