• USD/CAD climbs to a multi-week high on Monday amid sustained USD buying interest.
• Rising bets for a 75 bps Fed rate hike in September, the risk-off mood underpins the buck.
• An uptick in oil prices offers some support to the loonie and might cap any further gains.

The USD/CAD pair builds on the previous session's strong rally from the 1.2900 neighbourhood and gains traction for the second successive day on Monday. The momentum lifts spot prices to the 1.3075 area, or the highest level since mid-July during the early European session and remains well supported by broad-based US dollar strength.

Fed Jerome Powell on Friday squashed hopes of a dovish pivot and signalled that interest rates would be kept higher for longer to bring down soaring inflation. The markets were quick to react and are now pricing in a greater chance of a 75 bps rate hike at the September FOMC meeting. This is reaffirmed by a fresh leg up in the US Treasury bond yields and pushes the US dollar to a fresh 20-year high on the first day of a new week.

Apart from this, the prevalent risk-off mood - as depicted by a sea of red across the equity markets - provides an additional lift to the safe-haven greenback. The combination of factors remains supportive of the strong bid tone surrounding the USD/CAD pair. That said, a modest uptick in crude oil prices could offer some support to the commodity-linked loonie and keep a lid on any meaningful upside for the major, at least for the time being.

Expectations that the major oil producer could cut output to stall the recent fall in oil prices helped offset hopes for the return of sanctioned Iranian oil exports. This, along with the conflict in Libya, acts as a tailwind for crude oil prices. The upside, however, remains capped amid growing concerns that a global economic downturn will hurt fuel demand and the prospects for a faster policy tightening by the US central bank.

From a technical perspective, acceptance above the 1.3055-1.3060 horizontal resistance suggests that the path of least resistance for the USD/CAD pair is to the upside. The mixed fundamental backdrop, however, warrants caution for aggressive bullish traders and before positioning for any further appreciating move amid absent relevant market-moving economic data.

Technical levels to watch