• A combination of factors prompts some intraday selling around USD/CAD on Monday.
• Rising oil prices underpin the loonie and exert pressure amid a sharp USD pullback.
• Aggressive Fed rate hike bets should limit the USD losses and lend support to the pair.

The USD/CAD pair surrenders its early gains to the 1.3075 area, or the highest level since mid-July and refreshes the daily low during the early North American session. The intraday downfall is sponsored by a combination of factors and drags spot prices to the 1.3015 area in the last hour.

Expectations that major oil producers could cut output to stall the recent fall in oil prices provide a modest lift to the black liquid. This, in turn, underpins the commodity-linked loonie and acts as a headwind for the USD/CAD pair. Apart from this, a dramatic US dollar turnaround from a fresh 20-year peak attracts some selling around the pair and contributes to the intraday decline.

The USD pullback, meanwhile, lacks any obvious fundamental catalyst and could be solely attributed to some profit-taking. That said, rising bets for a supersized 75 bps Fed rate hike at the September meeting, along with the prevalent risk-off environment, should help limit the USD losses. This, in turn, warrants some caution before placing fresh bearish bets around the USD/CAD pair.

The market bets for a more aggressive policy tightening by the Fed were reaffirmed by hawkish remarks by Fed Chair Jerome Powell on Friday. During his speech at the Jackson Hole Symposium, Powell signalled that interest rates would be kept higher for longer to bring down inflation. A further rise in the US Treasury bond yields reinforces market expectations and favours the USD bulls.

In the absence of any major market moving-economic releases, either from the US or Canada, the fundamental backdrop supports prospects for the emergence of some dip-buying around the USD/CAD pair. This further makes it prudent to wait for strong follow-through selling before confirming that last week's goodish bounce from sub-1.2900 levels has run out of steam.

Technical levels to watch