• USD/CAD extends its sideways consolidative price move around the 100-day SMA on Monday.
• A modest bounce in Oil prices benefits the Loonie and caps the pair amid subdued USD demand.
• Looming recession risks and US debt ceiling woes help limit the downside for the safe-haven buck.

The USD/CAD pair struggles to a firm intraday direction on Monday and oscillates in a narrow band around the 100-day Simple Moving Average (SMA) through the early North American session. The pair is currently placed around the 1.3500 psychological mark, nearly unchanged for the day, and remains well within a familiar trading range held over the past week or so.

A modest intraday bounce in Crude Oil prices underpins the commodity-linked Loonie and turns out to be a key factor acting as a headwind for the USD/CAD pair amid subdued US Dollar (USD) price action. A surprise breakdown in the US debt ceiling negotiations, along with less hawkish remarks by Federal Reserve (Fed) Chair Jerome Powell, trigger a fresh leg down in the US Treasury bond yields and weighs on the USD.

It is worth recalling that Powell, speaking at a Fed research conference on Friday, said that it is still unclear if interest rates will need to rise further amid uncertainty about the impact of past hikes and recent bank credit tightening. Furthermore, Minneapolis Fed President Neel Kashkari is out with his take this Monday, saying that it was a close call on whether he will be in favour of hiking the policy rate one more time in June or pausing.

Apart from this, the optimism over a potential improvement in US-China relations acts as a headwind for the safe-haven buck. The downside for the USD, however, remains cushioned, at least for the time being, amid worries over slowing global growth, particularly in China. This, in turn, is expected to dent fuel demand, should cap the upside for the Crude Oil prices and contribute to limiting any meaningful slide for the USD/CAD pair.

In the absence of any relevant market-moving economic data from the US, the focus will remain glued to a key meeting between President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling. Apart from this, the US bond yields, along with the broader risk sentiment, will influence the USD. Traders will further take cues from the Oil price dynamics to grab short-term opportunities around the USD/CAD pair.

Technical levels to watch