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  • USD/CAD staged a modest rebound from 34-month lows touched earlier this Wednesday.
  • A sharp spike in the US bond yields revived the USD demand and remained supportive.
  • Bullish crude oil prices underpinned the loonie and kept a lid on any meaningful upside.

The USD/CAD pair refreshed daily tops during the early North American session, with bulls now looking to build on the momentum further beyond the 1.2600 round-figure mark.

The pair quickly reversed an intraday dip to mid-1.2500s, or the lowest level since April 2018, and rallied around 50 pips in the last hour amid a sudden pickup in the US dollar demand. The yield on the benchmark 10-year US government bond rallied beyond 1.40% for the first time since February 2020, which was seen as a key factor that provided a strong lift to the greenback.

Reflation trade remains the primary theme in capital markets amid the progress on US President Joe Biden’s proposed $1.9 trillion stimulus package. This comes amid the impressive pace of COVID-19 vaccinations, which has been fueling hopes for a strong global economic recovery. This, along with rising inflation expectations, continued pushing the bond yields higher.

Meanwhile, the optimistic global economic outlook supported prospects for a strong recovery in fuel demand and pushed crude oil prices beyond the $63.00 mark, or 14-month tops. This, in turn, underpinned the commodity-linked loonie and turned out to be the only factor that held bulls from placing aggressive bets, rather capped the upside for the USD/CAD pair.

There isn’t any major market-moving economic data due for release from Canada and the US economic docket features the only release of New Home Sales. This makes it prudent to wait for some strong follow-through buying before confirming that the USD/CAD pair might have bottomed out in the near-term and positioning for any meaningful recovery move.

In the meantime, market participants will look forward to Fed Chair Jerome Powell’s second day of testimony before the House Financial Services Committee. Powell’s remarks are expected to be identical to those delivered before the Senate Banking Committee on Tuesday, though might influence the USD price dynamics and provide some impetus to the USD/CAD pair.

Technical levels to watch

 

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