• A combination of factors prompted fresh selling around USD/CAD on Monday.
• Bullish oil prices underpinned the loonie and exerted pressure amid weaker USD.
• A softer tone around the US bond yields acted as a headwind for the greenback.

The USD/CAD pair maintained its offered tone through the mid-European session and was last seen trading near the daily low, just above the 1.2700 mark.

A combination of factors failed to assist the USD/CAD pair to capitalize on Friday's strong rally and led to a modest bearish gap opening on the first day of a new week. As investors looked past disappointing Canadian jobs report, bullish crude oil prices underpinned the commodity-linked loonie. Apart from this, modest US dollar weakness acted as a headwind for the USD/CAD pair and exerted some downward pressure.

Crude oil prices consolidated the recent gains to the seven-year high and remained well supported by expectations that global supply would remain tight amid the post-pandemic recovery in fuel demand. Apart from this, the conflict between Russia and the West over Ukraine acted as a tailwind for the black gold. This, in turn, assisted the commodity to attract some dip-buying on Monday, which benefitted the Canadian dollar.

On the other hand, the USD struggled to build on the post-NFP recovery move from a two-and-half-week low and was pressured by a softer tone around the US Treasury bond yields. That said, renewed speculations for a larger Fed rate hike move at the March policy meeting – boosted by Friday's mostly upbeat US monthly jobs report – should limit any meaningful downside for the US bond yields and the greenback.

Investors now seem convinced that the Fed will adopt a more aggressive policy response to contain stubbornly high inflation. Hence, the market focus now shifts to the release of the US CPI report on Thursday. The data will play a key role in influencing the buck in the near term. Apart from this, oil price dynamics would be looked upon to determine the next leg of a directional move for the USD/CAD pair.

Technical levels to watch