• USD/CAD trades in negative territory for the second consecutive day on Monday amid the softer USD.
• The impact of geopolitical tensions in the Middle East boost the commodity-linked Loonie.
• Investors anticipate a potential rate rise by the Federal Reserve (Fed) due to the upbeat inflation data last week.
• US Retail Sales, Canadian inflation data will be closely watched events on Tuesday.

The USD/CAD pair struggles to gain during the Asian session on Monday. The downtick of the pair is supported by the US Dollar (USD) weakness and the rally in oil prices. The Canadian inflation data and US Retail Sales on Tuesday could trigger the volatility in the pair. As of writing, USD/CAD is trading near 1.3645, edging lower while losing 0.10% for the day.

On the Loonie front, Bank of Canada (BoC) Governor Tiff Macklem said on Friday that the recent rise in long-term bond rates is not a substitute for monetary policy and the economy is not headed for an imminent recession. Macklem went on to say that the central bank would consider the tighter financial conditions due to rising long-term bond rates before its forthcoming policy meeting on October 25.

Meanwhile, the rebound in oil prices boosts the commodity-linked Loonie as the country is the leading oil exporter to the US. That said, crude oil markets recover from the impact of geopolitical tensions in the Middle East. This, in turn, could lift the Canadian Dollar (CAD) and cap the upside of the USD/CAD pair.

On the other hand, markets have priced in a potential rate rise by the Federal Reserve (Fed) by the end of the year due to the higher inflation expectation and the upbeat inflation data last week. The University of Michigan (UoM) one-year Inflation expectations surged from 3.2% to 3.8%, and five-year inflation estimates jumped from 2.8% to 3%.

The US Michigan Consumer Sentiment Index fell to 63.0 from 68.1 in the previous reading, falling short of the forecast of 67.4. While the US Consumer Price Index (CPI) came in above the market consensus. However, the dovish comments from Fed officials this week might warrant bull traders on the aggressive bullish bets.

Later this week, traders will focus on the US Retail Sales data on Tuesday, which is expected to rise 0.2%. The Canadian Consumer Price Index (CPI) for September will also be released on Tuesday. Traders will take cues from these figures and find trading opportunities around the USD/CAD pair.