• USD/CAD attracts some dip-buying near the 1.3630 region, though lacks follow-through.
• Positive oil prices underpin the loonie and act as a headwind amid overbought RSI (14).
• The set-up favours bullish traders and supports prospects for a further appreciating move.

The USD/CAD pair recovers a major part of its intraday losses and climbs back above the 1.3700 mark during the early North American session.

Expectations for a more aggressive policy tightening by the Federal Reserve assist the US dollar to attract some dip-buying and offers some support to the USD/CAD pair. That said, the risk-on impulse, along with a softer tone surrounding the US Treasury bond yields, seems to cap gains for the safe-haven buck. Furthermore, a goodish recovery in crude oil prices is seen underpinning the commodity-linked loonie and acting as a headwind for the major.

From a technical perspective, the overnight strong move up to the highest level since May 2020 pushed spot prices through the top end of a two-week-old ascending channel. This could be seen as a key trigger for bullish traders. That said, RSI (14) on the daily chart is flashing extremely overbought conditions and warrants some caution, making it prudent to wait for some near-term consolidation before positioning for any further appreciating move.

Nevertheless, the set-up still suggests that the path of least resistance for the USD/CAD pair is to the upside. Hence, a move back towards the 1.3745-1.3750 intermediate hurdle, en route to the 1.3800 round-figure mark, remains a distinct possibility. Some follow-through buying should pave the way for additional gains and an extension of the recent strong rally witnessed over the past two weeks or so.

On the flip side, the daily swing low, around the 1.3630 region, now seems to protect the immediate downside. Any further slide below the 1.3600 mark could be seen as a buying opportunity and find decent support near the lower end of the aforementioned trend channel, currently around the 1.3565 region. A convincing break below will negate the positive outlook and set the stage for a deeper corrective fall.

USD/CAD 4-hour chart

Key levels to watch