• USD/CAD gains traction for the third straight day and is supported by a combination of factors.
• Sliding crude oil prices undermines the loonie and acts as a tailwind amid modest USD strength.
• The upside seems limited as the focus remains glued to the FOMC policy decision on Wednesday.

The USD/CAD pair attracts some buying for the third successive day on Monday and maintains its bid tone through the early European session. The pair is currently placed around the 1.3635 region and might now be looking to build on its bounce from levels just below the 1.3500 psychological mark, or over a one-month low touched last Thursday.

Crude oil prices come under some selling pressure on Monday after weaker-than-expected Chinese business activity data revives fears about a deeper global economic downturn and slowing fuel demand. This, in turn, undermines the commodity-linked loonie and is seen as a key factor acting as a tailwind for the USD/CAD pair amid a modest US dollar strength.

Furthermore, the disappointing Chinese economic data temper investors' appetite for riskier assets, which is evident from a softer tone around the equity markets. Apart from this, elevated US Treasury bond yields, bolstered by expectations for another supersized 75 bps hike by the Federal Reserve, lends additional support to the safe-haven greenback.

That said, speculations that the Fed will soften its hawkish tone - amid signs of a slowdown in the US economy - might hold back the USD bulls from placing aggressive bets. Hence, investors might prefer to move to the sidelines ahead of the key central bank event risk - the outcome of the highly-anticipated two-day FOMC policy meeting on Wednesday.

Adding to this, expectations of tight supply should limit any deeper losses for crude oil prices and further contribute to capping gains for the USD/CAD pair. In the absence of any major market-moving economic releases, either from the US or Canada, the mixed fundamental backdrop warrants some caution before positioning for any further intraday gains.

Technical levels to watch