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  • USD/CAD attracted some dip-buying on Wednesday and turned positive for the second straight day.
  • An intraday turnaround in oil prices undermined the loonie and remained supportive of the uptick.
  • Retreating US bond yields kept the USD bulls on the defensive and capped the upside for the major.

The USD/CAD pair rallied over 35 pips from the early European session lows and jumped back to the top end of its daily trading range, around the 1.2135-40 region in the last hour.

The pair attracted some dip-buying near the 1.2100 round-figure mark and might now be looking to build on the recent bounce move from the lowest level since May 2015 touched earlier this week. The latest leg of a sudden spike over the past hour or so could be attributed to a fresh leg down in crude oil prices, which tend to undermine demand for the commodity-linked loonie.

WTI crude oil failed to capitalize on the intraday uptick, instead witnessed a turnaround from the $64.00 neighbourhood and dived closer to three-week lows set in the previous day. Worries that surging COVID-19 cases and the imposition of new restrictive measures in some Asian countries would hinder fragile fuel demand recovery continued acting as a headwind for the commodity.

That said, the emergence of some fresh selling around the US dollar might keep a lid on any meaningful upside for the USD/CAD pair, at least for the time being. Despite hints that the Fed has begun debating on QE tapering, the USD struggled to gain any meaningful traction amid a sharp pullback in the US Treasury bond yields. This, in turn, might cap gains for the USD/CAD pair.

Hence, it will be prudent to wait for some strong follow-through buying before confirming that the USD/CAD pair has bottomed out in the near term and positioning for any meaningful recovery. Market participants now look forward to the US economic docket – featuring the release of the Philly Fed Manufacturing Index and Initial Weekly Jobless Claims – for a fresh impetus.

Apart from this, the US bond yields will influence the USD. Traders will further take cues from a scheduled speech by the Bank of Canada Governor Tiff Macklem and oil price to grab some short-term opportunities around the USD/CAD pair.

Technical levels to watch

 

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