USD/CAD struggles near multi-month lows, just above mid-1.2900s

• Retreating oil prices undermined loonie and helped USD/CAD to gain some traction.
• A modest USD rebound remains supportive, albeit the uptick lacked bullish conviction.

The USD/CAD pair edged higher on Tuesday, albeit remained well within striking distance of over 14-month lows set last week – just above mid-1.2900s.

A combination of factors – pullback in oil prices and easing US dollar bearish pressure – helped the pair to gain some positive traction and recover a part of the previous session's negative move.

Upside remains capped

As the market recovered from the initial shock of continuing tensions between the US and Iran, oil prices retreated amid some profit-taking and undermined the commodity-linked currency – loonie.

This coupled with a modest pickup in the US dollar demand further collaborated to the pair's attempted recovery, though lacked any bullish conviction and remained capped amid fresh threats from Iran.

In an exclusive interview with Global Times on Monday, Mohammad Keshavarzzadeh, Iranian ambassador to China, said that Iran will retaliate against the US killing of Quds Force Commander.

Adding to this, Iran’s leading news agency – Fars News Agency – was out with the latest headlines stating that Iran is reportedly assessing 13 retaliation 'scenarios' against the US.

The incoming headlines continued fueling prospects for a further escalation of geopolitical tensions in the Middle East and helped oil prices to bounce off lows, eventually capping gains for the major.

Moving ahead, market participants now look forward to the US economic docket – highlighting the release of ISM Non-Manufacturing PMI – in order to grab some short-term trading opportunities.

Technical levels to watch