• USD/CAD trims a part of its intraday gains, though the downside remains cushioned.
• Rising oil prices underpin the loonie and act as a headwind amid a modest USD pullback.
• Aggressive Fed rate hike bets favour the USD bulls and should lend support to the pair.

The USD/CAD pair builds on Friday's late rebound from the 1.3075 area and kicks off the new week on a positive note. The pair, however, struggles to capitalize on the move and trims a part of its strong intraday gains, retreating to mid-1.3100s during the first half of the European session.

Expectations that OPEC+ producers will cut production to support prices at a meeting later this Monday push crude oil prices higher. This, in turn, boosts the commodity-linked loonie and acts as a headwind for the USD/CAD pair. Apart from this, a modest US dollar pullback from a fresh two-decade high attracts some sellers near the 1.3175 region.

Signs of recovery in the risk sentiment - as depicted by a generally positive tone around the equity markets - prompt some profit-taking around the safe-haven greenback. That said, worries about a deeper global economic downturn should cap any optimism. This, along with hawkish Fed expectations, should help limit any meaningful USD corrective slide.

Despite Friday's mixed US monthly jobs report, investors seem convinced that the Fed will stick to its aggressive policy tightening path. In fact, the markets are currently pricing in a supersized 75 bps rate hike at the upcoming FOMC meeting on September 20-21. This remains supportive of elevated US Treasury bond yields and favours the USD bulls.

The fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside and any meaningful pullback might still be seen as a buying opportunity. Traders, however, might refrain from placing aggressive bets ahead of the OPEC meeting and amid relatively thin trading volumes on the back of the Labor Day holiday in the US.

Technical levels to watch