USD/CAD turns positive near mid-1.23s despite oil rally

The USD/CAD pair staged a modest recovery in the late NA session as the hawkish comments from Fed speakers gave an additional boost to the greenback. As of writing, the pair was trading at 1.2357, gaining 0.15% on the day.

Delivering his speech before the Economic Club of Grand Rapids on Monday, Chicago Fed President Evans said that a gradual and a cautious approach to policy normalization was appropriate and added that the U.S. economy was close to full employment. Although he also noted that the monetary policy would still be accommodative even after the Fed allows the balance sheet to shrink, investors continued to price the increasing odds of another rate hike before the end of the year. According to the CME Group FedWatch Tool, the probability of a 25 basis points December hike is at 71.4%.

• Fed's Evans: Gradual, cautious approach to policy normalization is appropriate

Earlier in the session, New York Fed President William Dudley also adopted a hawkish tone as he argued that the factors depressing the US inflation were fading and that he was expecting the gradual policy tightening to continue. The US Dollar Index reached its highest level since the FOMC-led spike last Wednesday at 92.52 and went into a consolidation phase. At the moment, the DXY is at 92.44, up 0.53% on the day.

• Fed's Dudley: Temporary factors depressing US inflation are fading - LiveSquawk

On the other hand, the commodity-sensitive loonie remained relatively resilient against the buck throughout the day amid an ongoing rally seen in crude oil prices. The barrel of West Texas Intermediate refreshed its 5-month top at $52.27 on Monday as OPEC's compliance with the output-cut agreement, which was above 100% in August, fueled the upsurge.

• WTI climbs to the highest since April above $52.00

On Tuesday, the economic calendar won't be offering any data from Canada, and the price action is likely to be driven by the DXY movements. Tomorrow, Cleveland Fed President Loretta Mester's and Lael Brainard's, a member of the Board of Governors of the Federal Reserve System, speeches will be in the limelight in the NA session.

Technical levels to consider:

The pair could encounter the first hurdle at 1.2385 (Sep. 20 high) ahead of 1.2455 (50-DMA) and 1.2500 (psychological level). On the downside, supports could be seen at 1.2300 (psychological level), 1.2250 (20-DMA) and 1.2120 (Sep. 15 low). 

• USD/CAD neutral short term – Scotiabank