Lower crude oil prices have weakened the loonie, and served as a tailwind to sustained USD buying.

The falling yields of US bonds prevented bulls from placing large bets, and they capped the gains for the pair.

USD/CAD recovered more than 50 pips from its daily low and reached a new intraday high of 1.2745 during the first half European session.

The USD/CAD pair was able to attract dip-buying in the 1.2685 area on Tuesday, and the USD/CAD pair turned positive for the fourth consecutive day. Crude oil prices remained near their two-week low due to concerns that China's renewed COVID-19 curbs will reduce fuel demand. This, in turn, weighed down the commodity-linked loafie, and acted as an upward wind for spot prices, given the strong bullish sentiment surrounding US dollar.

USD reached a record high of more than two years due to the market belief that the Fed would tighten its monetary policy faster to reduce soaring inflation. Investors expect the US central banking to raise interest rates 50 bps at the four FOMC meetings in May June July July September. Investors' desire to invest in perceived riskier assets was also dampened by concerns about slowing global growth.

The USD bulls were unable to place aggressive bets due to the ongoing retracement slide and this kept any gains for USD/CAD at bay for now. It is prudent to wait for follow-through buying before positioning yourself for any near-term appreciation. Traders are now looking forward to the US economic docket. This will include the release of Durable Goods Orders as well as the Conference Board's Consumer Confidence Index.

The USD/CAD pair will also be affected by the US bond yields and the wider market risk sentiment. To take advantage of short-term opportunities, traders will also be influenced by the oil price dynamics.