• USD/CAD continues gaining traction on Monday and climbs to its highest level since November 2020.
• Bearish crude oil prices undermine the loonie and offer some support amid a modest USD strength.
• Bulls might turn cautious as the focus shifts to the highly-anticipated FOMC decision on Wednesday.

The USD/CAD pair builds on last week's bullish breakout momentum through the 1.3210-1.3220 resistance zone and gains some follow-through traction on Monday. The momentum lifts spot prices further beyond the 1.3300 mark, to the highest level since November 2020 during the early European session and is sponsored by a combination of factors.

Concerns that a deeper global economic downturn and China's zero-covid policy will dent fuel demand drag crude oil prices to over a one-week low. This, in turn, undermines the commodity-linked loonie and acts as a tailwind for the USD/CAD pair. Apart from this, the emergence of fresh US dollar buying, supported by hawkish Fed expectations, provides an additional lift to the major and remains supportive of the ongoing positive move.

The incoming US macro data, including the stronger US CPI report for August, suggested that the Fed will tighten its monetary policy at a faster pace. In fact, the markets have fully priced in at least a 75 bps rate increase and a smaller chance of a full 100 bps hike at this week's FOMC meeting. This remains supportive of elevated US Treasury bond yields, which, along with the risk-off mood, is seen benefitting the safe-haven buck.

The market sentiment remains fragile amid worries that the rapid rise in borrowing costs will lead to a deeper global economic downturn. Adding to this, the deteriorating US-China relationship tempers investors' appetite for perceived riskier assets, which is evident from a generally weaker tone around the equity markets. In the latest development, US President Joe Biden said the US would defend Taiwan in the event of an attack by China.

The fundamental backdrop favours the USD bulls and suggests that the path of least resistance for the USD/CAD pair is to the upside. Even from a technical perspective, acceptance above the 1.3300 mark supports prospects for a further appreciating move. That said, traders might refrain from placing aggressive bets amid absent relevant market-moving economic data and ahead of the highly-anticipated FOMC policy decision on Wednesday.

Technical levels to watch