• USD/CAD climbed to a multi-week high on Tuesday, though lacked follow-through buying.
• An uptick in crude oil prices underpinned the loonie and acted as a headwind for the major.
• A combination of factors should continue to benefit the USD and help limit the downside.
• Investors might also refrain from placing aggressive bets ahead of the crucial US CPI report.

The USD/CAD pair surrendered a major part of its intraday gains to the four-week high and was last seen hovering near the lower end of its daily trading range, around the 1.2635 region.

The pair added to the overnight strong gains and edged higher for the second straight day on Tuesday - also marking the fifth day of a positive move in the previous six. The momentum was sponsored by sustained US dollar buying, though an uptick in crude oil prices offered some support to the commodity-linked loonie and capped the USD/CAD pair.

The USD inched back closer to its highest level since May 2020 and continued drawing support from expectations for a more aggressive policy tightening by the Fed. The bets were reinforced by Chicago Fed President Charles Evans' comments on Monday, saying that an accelerated pace of interest-rate increases to combat inflation is worth debating.

This, along with worries that the recent surge in commodities will put upward pressure on already high consumer prices, pushed the US Treasury bond yields to a fresh multi-year peak and benefitted the buck. Hence, the market focus will remain glued to the latest US consumer inflation figures, due for release later during the early North American session.

In the meantime, reluctant to place aggressive directional bets kept a lid on any meaningful upside for the USD/CAD pair amid modest pickup in oil prices. Meanwhile, investors remain concerned that the war in Ukraine and tough COVID-19 restrictions in China could hit global growth. This should continue to underpin the safe-haven USD and lend support to the pair.

Technical levels to watch