• USD/CAD attracts some dip-buying on the first day of a new week, though lacks follow-through.
• Softer Crude Oil prices undermine the Loonie and lend some support amid a modest USD uptick.
• Expectations for an imminent Fed rate hike pause act as a headwind for the USD and cap gains.

The USD/CAD pair reverses an intraday dip to the 1.3340 area on Monday and climbs to the top end of its daily trading range during the first half of the European session. The pair, however, remains confined well within Friday's broader trading range, below a technically significant 200-day Simple Moving Average (SMA) and is currently placed around the 1.3365-1.3370 region.

The US Dollar (USD) edges higher for the second successive day and moves away from a one-year low touched on Friday. Apart from this, a modest downtick in Crude Oil prices is seen undermining the commodity-linked Loonie and acting as a tailwind for the USD/CAD pair. The University of Michigan's preliminary report showed that one-year inflation expectations rose to 4.6% in April from 3.6% previous and fueled speculations that the Federal Reserve (Fed) might continue raising interest rates.

Adding to this, hawkish comments by Fed officials reaffirmed market expectations for another 25 bps lift-off at the next FOMC meeting in May. This, in turn, remains supportive of elevated US Treasury bond yields and continues to lend some support to the Greenback. That said, growing acceptance that the Fed will pause its rate-hiking cycle, sooner rather than later, amid signs of easing inflationary pressures, holds back the USD bulls from placing aggressive bets and seems to cap the USD/CAD pair.

The US CPI and the PPI report released last week indicated that disinflation is progressing smoothly. Moreover, the mostly downbeat US Retail Sales figures on Friday reaffirmed the view that the Fed's year-long interest rate hiking campaign is cooling domestic demand. This makes it prudent to wait for strong follow-through buying before confirming that the USD/CAD pair has formed a near-term bottom near the 1.3300 mark, or a two-month low set on Friday, and positioning for further gains.

Market participants now look to the US economic docket, featuring the release of the Empire State Manufacturing Index later during the early North American session. Apart from this, the US bond yields, along with the broader risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair. Traders will further take cues from Oil price dynamics to grab short-term opportunities.

Technical levels to watch