USD/CAD inter-markets: Fed rate-hike prospects might limit any sharp downslide

The greenback, as measured by the overall US Dollar index, seems to have lost its upside momentum, with the USD/CAD pair erasing all of its early gains to 1.3190 and turn back sharply lower to currently trade around 1.3100 round figure mark.

The US Dollar has been gaining traction after last week's spectacular jobs report for July resurfaced expectations of an eventual Fed rate-hike later during the year and is reflected in the CME group's Fed Fund futures, which is currently pricing-in a 40% probability of such an action in December. 

However, continuous recovery in crude oil prices, on news that several OPEC members might be pushing for a fresh deal on output freeze, extended support to the Canadian Dollar and limited the pair's further appreciating move. Recent downturn in oil prices will be the key discussion point when OPEC holds an informal talk at an energy conference in September. 

Meanwhile, the latest leg of downslide in the major was backed by a sharp decline in Canadian 10-years Treasury bond yields. However, increasing differential between the US and the Canadian yields is favoring increasing demand for the US Dollar. Hence, a minor retracement in crude oil prices accompanied with bounce-back in Canadian treasury yields would assist the pair to recover some of its lost ground. 

Alternatively, a further rise in oil prices and declining yield spread would further weigh on the major. However, increasing prospects of an imminent Fed rate-hike might come to the rescue and restrict any sharp downslide for the pair.