USD/CAD drops to the lowest level since late-Jan., around 1.3170-65 region

• USD/CAD continued losing ground for the second consecutive session on Tuesday.
• The heavily offered tone around the USD was seen as a key factor exerting pressure.
• The US fiscal impasse and sliding US bond yields continued undermining the greenback.

The USD/CAD pair weakened further below the 1.3200 mark and tumbled to near seven-month lows during the early European session.

The pair added to the previous day’s losses and witnessed some strong follow-through selling for the second consecutive session on Tuesday amid the heavily offered tone surrounding the US dollar. The uncertainty over the next round of the US fiscal stimulus measures, coupled with sliding US Treasury bond yields and Monday’s softer US macro data forced investors to continue dumping the greenback.

In fact, the New York Fed’s Empire State Manufacturing Index tumbled to 3.7 in August from 17.2 previous and missed consensus estimates by a big margin, fueling concerns about the US economic recovery. Apart from this, the latest optimism over a potential vaccine for the highly contagious COVID-19 further undermined the USD’s relative safe-haven status against its Canadian counterpart.

Apart from this, possibilities of some short-term trading stops being triggered on a sustained break below the 1.3200 mark further seemed to have contributed to the USD/CAD pair’s slide to the lowest level since late-January. The downfall seemed unaffected by a consolidative price action around crude oil prices, which tend to influence demand for the commodity-linked currency – the loonie.

Tuesday’s US economic docket features the release of Building Permits and Housing Starts, though is likely to pass unnoticed and do little to provide any meaningful impetus to the major. Hence, the key focus will remain on Wednesday’s release of the latest FOMC meeting minutes, which should help investors to determine the USD/CAD pair’s next leg of a directional move.

Technical levels to watch