USD/CAD clings to modest recovery gains above 1.2400 mark, lacks follow-through
- USD/CAD staged a modest bounce from over one-month lows amid a pickup in the USD demand.
- Last week’s hawkish BoC decision, an uptick in oil prices benefitted the loonie and capped gains.
- Reduced Fed rate hike bets might further collaborate to keep a lid on any strong positive move.
The USD/CAD pair maintained its bid tone through the first half of the European session and was last seen trading near daily tops, around the 1.2415-20 region.
Having shown some resilience below the 1.2400 mark, the pair regained positive traction on Tuesday and recovered a part of the previous day's slide to the lowest level since March 18. The US dollar found some support from a modest pickup in the US Treasury bond yields and moved away from multi-week lows touched on Monday. This, in turn, was seen as a key factor that provided a modest lift to the USD/CAD pair.
That said, a combination of factors might hold traders from placing aggressive bullish bets and keep a lid on any strong gains for the USD/CAD pair, at least for now. Investors seem convinced that the Fed will keep interest rates low for a longer period. Adding to this, the underlying bullish tone – amid prospects for a strong global economic recovery from the pandemic – could cap the upside for the safe-haven greenback.
On the other hand, the Canadian dollar might continue to benefit from last week's more hawkish BoC decision to reduce its weekly asset purchases. The Canadian central bank also brought forward the guidance for the first interest rate hike to the second half of 2022. Apart from this, an uptick in crude oil prices further underpinned the commodity-linked loonie and might act as a headwind for the USD/CAD pair.
This makes it prudent to wait for some strong follow-through buying before confirming that the USD/CAD pair has bottomed out and positioning for any further appreciating move. Market participants now look forward to the US economic docket, featuring the release of the Conference Board's Consumer Confidence Index for some impetus. Traders will also take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.
Technical levels to watch