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  • Sustained USD selling exerted some pressure on USD/CAD for the second straight day.
  • Retreating US bond yields, the risk-on mood continued weighing on the safe-haven USD.
  • Bullish crude oil prices underpinned the loonie and contributed to the modest downtick.

The USD/CAD pair traded with a mild negative bias heading into the European session and was last seen hovering around the 1.2040-35 region.

The pair, so far, has struggled to register any meaningful recovery and remained well within the striking distance of the lowest level since May 2015 touched last week. The US dollar languished near multi-month lows. Apart from this, bullish crude oil prices underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair.

Investors trimmed their bets over an inflation-driven rate hike after the White House pared down the infrastructure bill to $1.7 trillion from $2.25 trillion. Adding to this, FOMC members, including the Fed Governor Lael Brainard, Atlanta Fed President Raphael Bostic and St. Louis Fed President James Bullard, reiterated that any spike in inflation will be temporary.

The developments reinforced the Fed’s stubbornly dovish view and dragged the yield on the benchmark 10-year US government bond to one-week lows. This, in turn, was seen as a key factor that continued weighing on the greenback. Apart from this, the prevalent risk-on environment further dented the greenback’s relative safe-haven status.

On the other hand, the Canadian dollar remained well supported by a more hawkish Bank of Canada and got an additional boost from some follow-through uptick in oil prices. It is worth recalling that the BoC brought forward the guidance for the first interest rate hike to the second half of 2022 at the April policy meeting.

The fundamental backdrop remains tilted in favour of bearish traders and supports prospects for further weakness. Moreover, the USD/CAD pair’s inability to find any buyers further add credence to the negative outlook. That said, oversold RSI on short-term charts warrants some caution before positioning for an extension of the downtrend.

Market participants now look forward to the US economic docket, highlighting the release of the Conference Board’s Consumer Confidence Index. This, along with the US bond yields and the broader market risk sentiment, might influence the USD. Traders will further take cues from oil price dynamics for some short-term opportunities.

Technical levels to watch