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  • USD/CAD faced rejection near 1.2700 mark and edged back closer to multi-year lows.
  • Bullish oil prices underpinned the loonie and capped the attempted recovery move.
  • Hopes for additional US stimulus undermined the USD and contributed to the slide.

The USD/CAD pair retreated around 35 pips from Asian session highs and refreshed daily lows, around the 1.2660 region in the last hour.

The pair struggled to capitalize on its attempted recovery move to the 1.2700 neighbourhood, instead faced rejection and has now moved well within the striking distance of multi-year lows set on Tuesday. The early uptick remained capped amid the prevalent bullish sentiment around crude oil prices, which tend to underpin demand for the commodity-linked currency – the loonie.

In fact, oil prices rose to the highest since February after Saudi Arabia – during a meeting with allied producers – agreed to make voluntary output cuts of 1 million barrels per day (bpd) in February and March. Also supporting the commodity was Tuesday’s data from the American Petroleum Institute, which showed that US crude inventories dropped in the week to Jan. 1.

On the other hand, the US dollar languished near two-and-half-year lows amid increasing bets on a Democrat victory in the crucial US Senate runoff elections in Georgia. The outcome will determine the control of the Senate and also have a big impact on the incoming President Joe Biden’s ability to pursue his preferred economic policies, including additional stimulus measures.

Apart from this, hopes for a strong global economic recovery in 2021 remained supportive of the underlying bullish sentiment in the financial markets. This, along with expectations that the Fed will keep interest rates lower for a longer period continued undermining the safe-haven greenback. This, in turn, was seen as another factor that exerted some pressure on the USD/CAD pair.

Hence, the key focus will be on Wednesday’s release of the latest FOMC monetary policy meeting minutes. In the meantime, the US economic docket – highlighting the releases of the ADP report on private-sector employment – might influence the USD price dynamics. This, in turn, might assist traders to grab some short-term opportunities during the early North American session.

Technical levels to watch