• USD/CAD drifts lower for the second straight day and is pressured by a combination of factors.
• An uptick in oil prices underpins the loonie and exerts pressure amid a modest USD weakness.
• Aggressive Fed rate hike bets, recession fears should limit the USD downside and cap the major.

The USD/CAD pair adds to the previous day's heavy losses and remains under some selling pressure for the second successive day on Tuesday. The intraday downfall drags spot prices closer to mid-1.3600s, or a one-and-half-week and is sponsored by a combination of factors.

The prevalent risk-on environment - as depicted by a strong follow-through rally in the equity markets - continues to weigh on the safe-haven US dollar. Apart from this, a modest recovery in crude oil prices, bolstered by a softer buck, underpins the commodity-linked loonie and contributes to the offered tone surrounding the USD/CAD pair.

That said, the prospects for a more aggressive policy tightening by the Fed should act as a tailwind for the greenback and help limit deeper losses for the USD/CAD pair, at least for the time being. In fact, the markets seem convinced that the Fed will continue to hike interest rates at a faster pace to combat stubbornly high inflation.

The fed funds futures indicate a nearly 100% chance of another supersized 75 bps rate increase at the next FOMC policy meeting in November. This remains supportive of elevated US Treasury bond yields and favours the USD bulls. Apart from this, growing recession fears should cap the latest optimism in the markets and benefit the safe-haven buck.

Investors remain concerned about economic headwinds stemming from rising borrowing costs, China's zero-COVID policy and geopolitical risks. Furthermore, expectations that a deeper global economic downturn will dent fuel demand should cap the black liquid. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair.

Market participants now look to the US economic docket, featuring the release of Industrial Production data and Capacity Utilization Rate for some impetus later during the early North American session. Traders will further take cues from oil price dynamics for short-term opportunities, though the focus will remain on the Canadian CPI report on Wednesday.

Technical levels to watch