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  • USD/CAD dropped to the lowest level since April 2018 during the first half of the trading action.
  • Powell’s dovish comments, the risk-on mood continued weighing on the safe-haven greenback.
  • Bullish crude oil prices underpinned the loonie and further exerted some pressure on the major.

The USD/CAD pair refreshed multi-year lows during the Asian session, with bulls awaiting sustained weakness below the key 1.2500 psychological mark.

The pair added to this week’s losses and remained depressed through the first half of the trading action on Thursday. The Fed Chair Jerome Powell’s reassurance that interest rates would stay low for a long time kept the US dollar bulls on the defensive. Apart from this, the continuation of a bullish run in crude oil prices underpinned the commodity-linked loonie and exerted some pressure on the USD/CAD pair.

During his second day of testimony before the House Financial Services Committee on Wednesday, Powell showed commitment to the current ultra-easy monetary policy and reiterated that the Fed has no plans to cut back on money-printing or raise interest rates in the short term. Powell also calmed fears about inflation and said that he will only start worrying if prices begin to rise in a persistent and troubling way.

Powell’s comments gave a fresh impetus to reflation trade, which remained well supported by growing optimism about a strong global economic recovery. The progress in COVID-19 vaccinations and US President Joe Biden’s proposed $1.9 trillion stimulus package remained supportive of the underlying bullish sentiment in the financial markets. This was seen as another factor that dented the USD’s safe-haven status.

Meanwhile, the yield on the benchmark 10-year US government bond yields held near one-year tops, albeit did little to provide any respite to the USD bulls. The USD/CAD pair was further pressured by rallying crude oil prices. In fact, WTI crude futures rose for the fourth consecutive session and touched the highest levels in more than 13 months amid expectations for a strong recovery in the global fuel demand.

Market participants now look forward to the US economic docket, highlighting the release of the Prelim (second estimate) Q4 GDP print. This, along with the US Durable Goods Orders data and speeches by influential FOMC members, will influence the USD and produce some meaningful trading opportunities around the USD/CAD pair.

Technical levels to watch

 

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