USD/CAD struggles to direction, stuck in a range below 1.2700
- A combination of diverging forces failed to provide any impetus to USD/CAD.
- The USD climbed to fresh multi-month tops and extended support to the pair.
- An uptick in oil prices underpinned the loonie and capped gains amid risk-on.
The USD/CAD pair lacked any firm directional bias and remained confined in a narrow trading band, below the 1.2700 mark through the early European session.
Following a brief consolidation during the first half of the trading action on Wednesday, the US dollar regained positive traction and shot to the highest level since early November 2020. This, in turn, was seen as a key factor that assisted the USD/CAD pair to attract some dip-buying near the 1.2670-65 region.
The USD continued drawing some support from expectations for an early policy tightening by the Fed. It is worth recalling that the Fed last week hinted that it could begin rolling back its massive pandemic-era stimulus as soon as November. Moreover, the dot-plot indicated policymakers’ inclination to raise rates in 2022.
However, a solid rebound in the equity markets acted as a headwind for the safe-haven greenback. Apart from this, a modest uptick in crude oil prices underpinned the commodity-linked loonie and capped the upside for the USD/CAD pair. This makes it prudent to wait for some follow-through buying before placing fresh bullish bets.
Market participants now look forward to the US economic docket, featuring the only release of Pending Home Sales data. The key focus, however, will be on Fed Chair Jerome Powell’s remarks at the ECB Forum on Central Banking later during the North American session. This, along with the US bond yields, might influence the greenback.
Apart from this, traders would further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair. From a technical perspective, a sustained move beyond the 1.2700 mark might prompt some short-covering move and lift the pair towards the next relevant hurdle near the 1.2760 region.
Technical levels to watch