• USD/CAD retreats from over a one-week high and is pressured by a combination of factors.
• A modest uptick in crude oil prices underpins the Loonie and acts as a headwind for the pair.
• The USD remains on the defensive amid bets for smaller Fed rate hikes and exerts pressure.
• The prevalent risk-off mood could lend support to the safe-haven buck and help limit losses.

The USD/CAD pair edges lower during the early North American session and drops to a fresh daily low, around the 1.3480-1.3475 region in the last hour.

The US Dollar continues to be weighed down by expectations for a less aggressive policy tightening by the Fed and acts as a headwind for the USD/CAD pair. In fact, investors now seem convinced that the US central bank will soften its hawkish stance and the current market pricing indicates a greater chance of a smaller 25 bps rate hike in February.

Apart from this, a modest bounce in oil prices underpins the commodity-linked Loonie and further contributes to capping the upside for the USD/CAD pair. The USD bulls, meanwhile, seem unimpressed by the better-than-expected release of the Philly Fed Manufacturing Index and Weekly Initial Jobless Claims, which does little to provide any impetus.

That said, worries about a deeper global economic downturn might continue to keep a lid on the black liquid. Apart from this, a fresh wave of the global risk-aversion trade - as depicted by a sea of red across the global equity markets - could lend some support to the safe-haven buck and the USD/CAD pair, warranting caution for bearish traders.

From a technical perspective, spot prices, so far, have struggled to find acceptance above the 1.3500 psychological mark or build on the momentum beyond the 100-day SMA. This makes it prudent to wait for strong follow-through buying before placing fresh bullish bets around the USD/CAD pair and positioning for any further appreciating move.

Technical levels to watch